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Blockchain-Based KYC Model For Credit Allocation in Banking

The document discusses a blockchain-based KYC model aimed at improving credit allocation in banking by enhancing operational efficiency and security. It highlights the advantages of a decentralized system that allows for real-time validation of customer data, reducing the risk of fraud and data breaches while streamlining the credit allocation process. The proposed system leverages Ethereum to facilitate secure data sharing among financial institutions, ultimately improving customer experience and regulatory compliance.

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Manju Nath
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36 views9 pages

Blockchain-Based KYC Model For Credit Allocation in Banking

The document discusses a blockchain-based KYC model aimed at improving credit allocation in banking by enhancing operational efficiency and security. It highlights the advantages of a decentralized system that allows for real-time validation of customer data, reducing the risk of fraud and data breaches while streamlining the credit allocation process. The proposed system leverages Ethereum to facilitate secure data sharing among financial institutions, ultimately improving customer experience and regulatory compliance.

Uploaded by

Manju Nath
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Blockchain-Based KYC Model for Credit Allocation

in Banking
ABSTRACT

The implementation of the Know Your Customer (KYC) strategy by banks within
the financial sector enhances the operational efficiency of such establishments. The
data gathered from the client during the KYC procedure may be applied to deter
possible fraudulent activities, money laundering, and other criminal undertakings.
The majority of financial institutions implement their own KYC procedures.
Furthermore, a centralized system permits collaboration and operation execution by
multiple financial institutions. Aside from these two scenarios, KYC processes can
also be executed via a blockchain-based system. The blockchain’s decentralized
network would be highly transparent, facilitating the validation and verification of
customer data in real-time for all relevant stakeholders. In addition, the immutability
and cryptography of the blockchain ensure that client information is secure and
immutable, thereby eradicating the risk of data breaches. Blockchain-based KYC can
further improve the client experience by eliminating the requirement for redundant
paperwork and document submissions. After banks grant consumers loans, a
blockchain-based KYC system is proposed in this study to collect limit, risk, and
collateral information from them. The approach built upon Ethereum grants financial
institutions the ability to read and write financial data on the blockchain network.
This KYC method establishes a transparent, dynamic, and expeditious framework
among financial institutions. In addition, solutions are discussed for the Sybil attack,
one of the most severe problems in such networks.
EXISTING SYSTEM

George et al. [8] recommends the use of a decentralized platform that eliminates the
need for a central authority or intermediary and enables many organizations to
securely and transparently communicate and assess KYC information. In order to
accomplish this, the paper also outlines the development and deployment of a
prototype application that makes use of smart contracts and encryption methods.
According to the study, the suggested method can raise regulatory compliance, lower
operating expenses, and improve customer experience.

The study by Roman [9] mentions problems with the data when calculating the credit
score. One of the main problems is limited data sharing due to lack of trust between
individuals and third parties. This results in insufficient data and inaccurately
calculated results in credit scoring. To solve this problem, they introduced the
‘‘Trusted Data Marketplace’’ in their work. This system, which can be integrated
with blockchain, contributes to credit scoring.

In his study, Karayılan [10] examined the blockchain infrastructure and studied the
use of blockchain infrastructure for KYC solutions and the use of blockchain in
financial applications.Within the scope of the project, two models were created and
compared to create the information sharing network. In the first model, smart
contracts are developed and data sharing and storage is provided on the blockchain.
In the second model, the data is kept in an external database and keyed in the
blockchain. Another study in the financial field is on blockchain, real-time
accounting and credit risk modelling.
In his work, Byström [11] studied how blockchain will affect the way credit risk
modeling is done and how trust and time can be improved with real-time accounting
on blockchain. In the study, the feature that records in the blockchain can never be
changed is emphasized. Blockchain, a reliable and constantly updated structure, has
been applied to store the accounting records of a company using blockchain.
Financial data is prepared at regular intervals and added to the company’s ledger. An
auditor expresses an opinion on the accuracy of the statements. When using this
information, investors and credit risk managers must trust that the auditor provides
accurate information and accurately records the firm’s financial data in the ledger. In
this process, the concept of trust is extremely important, from the preparation of
financial statements to the approval of the auditor.To ensure this trust, Byström has
worked to make blockchain a solution. In his study, the company voluntarily writes
its financial data to the blockchain, which will immutably and timestamp the data. In
this way, the entire financial data ledger created is visible and will prove the
consistency of this data.

A blockchain-based credit analysis infrastructure for credit risk management is


proposed by Chakraborty [12] By using blockchain technology, the efficiency of
financial systems is aimed by ensuring that lenders and debtors make transactions in
a safe and transparent manner. The study used machine learning algorithms to
determine credit scores of lenders and borrowers. It has been observed that the
proposed infrastructure provides more accurate and faster results than traditional
methods. A blockchain-based loan recommendation system for financial institutions,
called KiRTi, is presented by Patel [13].

Wang et al. [15] present a systematic and comprehensive overview of self-executing


contracts, also known as ‘‘smart contracts,’’ deployed on blockchain platforms like
Ethereum and Hyperledger, are attracting increasing attention across diverse sectors,
particularly within the financial domain. This appeal stems from their inherent ability
to automate and enforce contractual stipulations without the need for centralized
authorities. However, the widespread adoption of smart contracts is contingent upon
addressing significant challenges, including those pertaining to security
vulnerabilities and data privacy considerations. In this study, Rohitchandran et al.
[16] proposes a system that offers a secure platform for storing and managing bank
records. Smart contracts, self-executing code embedded within the blockchain, can
govern data storage and access permissions. Additionally, robust cryptographic
algorithms employed by blockchain ensure the confidentiality of sensitive financial
information. Ali et al. [17] investigates the potential of green cryptocurrencies as a
novel asset class for portfolio diversification, particularly within the context of
environmental sustainability and adherence to UN SDGs. A four-step selection
process is introduced to identify cryptocurrencies with lower environmental
footprints.

Disadvantages
In an existing system, the system implemented Blockchain technology offers the
financial sector a compelling solution for KYC validations. This approach enables
selective data sharing while upholding tamper-proof data integrity.

Proposed System
In this paper, the application of blockchain technology presents a compelling
opportunity for the secure and transparent storage and exchange of credit allocation
data within the financial sector. This distributed ledger system fosters trust and
transparency amongst all stakeholders involved in the credit allocation process,
including banks, borrowers, and other relevant parties. Furthermore, blockchain
technology can significantly enhance the efficiency of credit allocation procedures.
By leveraging this technology for credit allocation data, banks can streamline the
verification and validation of borrower information, resulting in a reduction in both
the time and costs associated with traditional, manual processes.

Advantages
KYC process is very important in banking. There are potential security
vulnerabilities in KYC processes traditionally carried out in banking. Additionally, it
is not efficient for each bank to carry out the KYC process separately.

The Blockchain-based KYC model both speeds up the processes and offers a
decentralized, secure environment. In addition, blockchain-based KYC processes
allow banks to quickly make risk assessments. In this way, instant interbank data
sharing occurs instead of end-of-day transactions.

SYSTEM REQUIREMENTS

➢ H/W System Configuration:-

➢ Processor - Pentium –IV


➢ RAM - 4 GB (min)
➢ Hard Disk - 20 GB
➢ Key Board - Standard Windows Keyboard
➢ Mouse - Two or Three Button Mouse
➢ Monitor - SVGA

Software Requirements:
 Operating System - Windows XP
 Coding Language - Java/J2EE(JSP,Servlet)
 Front End - J2EE
 Back End - MySQL

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