Hassle - Free and Secure e-KYC System Using

Distributed Ledger Technology

Bharti Pralhad Rankhambe
and
Dr Mrs Harmeet Kaur Khanuja

Department of Computer Engineering,

MMCOE, Pune, Maharashtra, India

The blockchain technology is a prominent, reliable and secure technology which is getting into almost every
industry. The fundamental essence of blockchain technology offers features like transparency, decentralization,
immutability, resilience, disintermediation, collaboration, security and trust. In this paper, we have focused on
how the present banking industry, especially the KYC document verification process, can be impacted after using
blockchain to store and track the records. The current day banking KYC processes are highly reliable on paper
which is an outworn process. It is utmost essential today to have an upgraded KYC system, embedded with
a reliable and trustable technology like blockchain, that could withstand frauds, and resolve the scalability and
security issues. In the proposed system, the use of blockchain in KYC process restricts the presence of middlemen.
This results in a reduction of fraudulent activities and errors that may occur when there are a lot of manual
activities involved. Furthermore, the document verification process is only conducted only one time, no matter
what is the number of financial institutions with which the customer is working with. This system provides more
efficiency, reduction in costs, enhanced customer rendezvous and end-to-end transparency during the process of
integrating the customer documents into the bank database.

Keywords: Blockchain, KYC, Smart Contracts, Decentralization, Security

1. INTRODUCTION
Blockchain, at present, is the most novel buzzword within the industry. It is a wide-ranging
technology that has its radicles in the financial sector wherein, its first application was a cryp-
tocurrency called Bitcoin. Blockchain has multiple other applications beyond cryptocurrency.
Many industries have already adopted it. Blockchain can be defined as a logically decentralized
and technically distributed ledger, shared individually in an architecture of a peer to peer network
consisting of nodes. This ledger encompasses a sequence of transactions. These transactions are
encrypted with a secured hashing mechanism. This mechanism is known as the SHA Algorithm.
The transactions are added into a sequence block with an agreement mechanism between the
peers, which is known as ‘Consensus’ which means agreement between the peers. There is no
central authority to dominate the protocol or the blockchain. The blockchain can be described
concisely, as a tamper-proof record of all transactions on the network, which can be available for
access to all members of the network and also offers the advantages of working at low costs with
reduced security risks, and enhanced efficiency[13].
‘Bitcoin’ - the first application of blockchain was introduced to the world by an unknown pro-
grammer, named with the alias “Satoshi Nakamoto”. The white paper “Bitcoin: A peer to peer
Electronic Cash System” published 12 years back on the date - 31 st October 2008 was used as
a medium to introduce this technology to the world. Ten years later, nobody has knowledge of
the real identity of Satoshi Nakamoto, but the world at large knows about Bitcoin[14].
Bitcoin is not only a cryptocurrency, but it is a collection of concepts and methodologies used to
secure that cryptocurrency. These concepts can be reused in other areas, where the applications

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 Hassle - Free and Secure e-KYC System Using Distributed Ledger Technology · 75

are far beyond just a virtual currency. How blockchain can transform the banking industry will
be explained in the following sections.

2. LITERATURE SURVEY
Sr. Title and Year Publisher/ Platform Outcome
No. Indexing Used
1 KYC Optimization Using Dis- Springer Ethereum End to end solution for KYC
tributed Ledger Technology and R3 cost distribution system using
(2017) Corda distributed ledger technology
2 Know Your Customer - Decen- IIT Bom- Quorum About Quorum Platform,
tralized Secure Sharing Protocol bay Blockchain cKYC and eKYC, Network,
on Quorum (2019) Platform Privacy and Consensus
3 Privacy-preserving KYC on Semantic Ethereum Centralized and decentralized
Ethereum (2018) Scholar Identities, mathematical expla-
nation, Use cases and Imple-
mentation details
4 Block Chain Technology (DLT CrossRef R3 Corda Smart Contracts Sample Code,
Technique) for KYC in FinTech Terminology related to R3
Domain: A Survey (2018) Corda platform
5 If at First you Don’t Succeed, R3 Corda R3 Corda Corporate KYC Utilities, KYC
Try a Decentralized KYC Plat- White Data Requirements, Models,
form: Will Blockchain Technol- Paper Benefits, Common Obstacles
ogy Give Corporate KYC a Sec- Faced by Both Centralized
ond Chance? (2018) and Decentralized KYC, Novel
Challenges
6 Decentralized KYC System Academia.- Inter - Proposed architecture, Key
(2017) edu, Cite Planetary generation flowchart, Sample
Factor File System Contracts (IPFS), Efficiency
percentage
7 Applications of Blockchain Tech- SpringerNa- NIL Analysis of the pros and cons,
nology to Banking and Financial ture, Re- by the RBI. Official document
Sector in India (2017) serve Bank of the RBI
of India
(IDRBT)
8 Applications of Blockchain Tech- CiteSeerx NIL Current pain points and how
nology in Banking and Finance blockchain can help.
(2018)
9 Blockchain application and out- SpringerO- NIL Internal and external issues of
look in the banking industry pen the banking industry, Payment
(2016) clearing system: distributed
clearing mechanism, obstacles
to implementing blockchain
technology in the banking in-
dustry, How should blockchains
be regulated?
10 Sovrin TM : A Protocol and White Pa- Hyperledg- About the Sovrin Foundation,
Token for Self-Sovereign Identity per from er Indy Hyperledger Indy
and Decentralized Trust (2018) the Sovrin
Foundation

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76 · Bharti P Rankhambe and Harmeet K Khanuja

Table I: Comparative Study Table of Research Papers

Table I shows the comparison table consisting of Paper Title, Year of Publication, Indexing,
Platform used and Outcome.

The Blockchain for banking platform helps us to make the e-KYC documents tamper proof
and allows the accurate and permanent allocation of this data to the customers. Along with
this, the functionality to verify these documents is also offered. It can reduce the overall frauds
and tampering of the identity documents, degrees and certificates. Blockchain technology can be
used to solve many document verification problems and can help banks as well as customers to
monitor the outcomes. The data can be stored securely and in a tamper proof format when it
is stored onto the blockchain network. Blockchain can be used in private, public and consortium
sectors depending upon the usage and the scope of area of the blockchain. Finance and banking
systems can take benefit of this scalability of the blockchain and can be effectively used in the
financial sector.

In this paper we have discussed the research gaps in the current KYC process, and how they
can be mended using Distributed Ledger Technology. In the Proposed Work section, we will see
the objectives of this research work. Moreover, we will study the advantages and limitations in
using Blockchain as a solution to the existing system. Further, in the same section, we will see
the Mathematical Model used to distribute the verification costs across the financial institutions
working with the customer. In the Proposed Methodology section, we will study the assumptions
and conditions considered for this research. In the following sections, we will be discussing the
System Architecture, System Workflow, Hardware and Software requirements, and finally the
Result Analysis, Conclusion and Future Work.

3. RESEARCH GAPS IN THE CURRENT KYC PROCESS

Since ancient times, ledgers have been like the nucleus of all economic transactions. They have
been used since generations to log payments, contracts, deals and also for movement of assets.
The journey which began with noting down information on clay tablets or papyrus surfaces has
now escalated to the invention of paper. Over the last couple of decades, computers have very
conveniently and speedily provided a way to store records in a digital form. Today, with the ad-
vent of innovation, the digital information storage is moving towards much higher forms - which
should most desirably be cryptographically secured, fast, decentralized and distributed. But, in
reality, today’s KYC process is a time consuming process which uses manual documentation. It
lacks the mechanism to track the throughout process, from start to end and hence has a potential
for fraudulent activities. We can see below example to overview the drawbacks of current KYC
system[8][17].

If we consider the current financial system, the financial institutions are required to onboard
their customers for the verification of their identity. This is an inevitable and essential step in
order to avoid fraudulent activities. This process is known as the Know Your Customer (KYC)
Document Verification Process[7][11][16]. The Know-Your-Customer process is nothing but inter-
change or give and take of essential official papers, between a person and the bank of the person.
Then, all the important data about the person is kept stored in a database of the bank. This
data is collected from official documents having Identity Proof, Address Proof, Photo Proof and
sometimes Bio metric data as well [4][7]. In India, a variety of government granted documents
can be provided for identification like, Passport, Aadhar Card, PAN Card, Driving License, Voter
ID, etc[4][7][11]. When these documents are submitted to the banks, they are undergone a back-
ground check to verify the authenticity and credibility of the documents so as to ensure that
no fake or illicit data is provided by the customer. Indian Government has made it mandatory
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 Hassle - Free and Secure e-KYC System Using Distributed Ledger Technology · 77

for all banks to undergo verification of all their customers. If these norms are not followed, the
banks have to pay heavy fines[7][11][16]]. For example, Reserve Bank of India imposed a penalty
of |50 lakh each on Punjab National Bank and Allahabad Bank; whereas, |25 lakh was fined on
Corporation Bank because of non-compliance with certain provisions of directions issued by the
Reserve Bank of India on Know Your Customer norms, anti-money laundering standards and
opening of current accounts[16].

When a customer intends to open an account in a financial institution, the KYC process gets
initiated. Initially, both parties involved, the bank and the customer acknowledge and admit on
the terms and conditions of the contract. Subsequently, the required documents are sent to the
bank by the customer to initiate the KYC verification process. In this process, the bank scru-
tinizes the documents and if everything is accurate, generates an internal document which aids
as a certificate to assure the regulator whether the status of the customer (validated or rejected)
and that the KYC process has been correctly conducted or not[1][3]. Note that this process is
repeated every time the customer wants to work with a new financial organization.

Figure 1: Current KYC Verification Process

Figure 1 shows an illustration of the process that occurs when one customer has to work with
three different financial institutions. It can be clearly observed from the diagram that the same
process is recurred three times. Also the total verification costs are generated thrice, though the
core process is in reality, the same. It is important to note here that the “core” process means
the minimum KYC verification that all financial institutes are obliged by law to conduct.

4. PROPOSED WORK
In this paper, emphasis is given on creating and maintaining a Digital Portfolio in determining
the value of Online documents (like Aadhaar Card, Pan Card, Passport, Driving License, Mar-
riage Certificate, etc) which are required for KYC verification. Blockchains can help users offer
secure and fraudulence-free sharing of documents only to the intended banking institute without
the interference of middlemen. Smart contracts can be used to automatically execute agreements
once a set of specified conditions are met. These smart contracts have the potential to reduce
paperwork in many sectors including the banking domain[11]. It could reduce paper-based pro-
cesses, minimize fraud, and increase accountability between users and those institutes they wish
to share their personal documents with. The most important advantage of using blockchain for
smart contracts and transactions is that, the same concept can also be applied towards making
the process of business accounting more transparent. In public assistance, the blockchain could
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78 · Bharti P Rankhambe and Harmeet K Khanuja

help streamline public assistance system for families. As financial institutions store more data,
blockchain could offer safer and potentially cheaper alternatives.
4.1 Objectives
The objectives of this research work are as follows:

X To provide an introduction to Blockchain Technology and its core social value proposition.

X To identify and engage with the key issues which are influencing policy-makers and other
key stakeholders in considering the use of blockchain technology as a value-added proposition
within a financial landscape for KYC document verification.

X To explain how financial institutions and customers can use the technology as a transparent
trusted system for securing, sharing and verifying personal documents required for KYC veri-
fication.

X To determine if the technology is fit-for-purpose for the recording of KYC banking process
within the short-term, and is likely to be taken-up by banks and financial institutions and be
deployed as an open standard.

X To discuss how blockchain technology may help bridge the legitimate need for banking institu-
tions to safeguard their brands and reputations when issuing banking credentials to individuals.

X To identify a set of clear opportunities and challenges for the take-up of blockchain technology
in financial institutions for KYC verification.

X To make a set of recommendations that may support RBI efforts to open up a different process
of KYC in Member States by maximizing the potential for blockchain technologies.
4.2 Advantages and Limitations
The advantages of this system are listed as below:

—This system will bring improvements in auditing and tracking duties of the national regulator
as it provides a transparent record of information which may act as the single point of truth
in case any disagreements occur.

—The proposed system allows for an alliance between financial institutions which often have
trust issues between them. Note that, this system allows for anonymous compensation and
document sharing. This anonymity property is most desired and hence supported by financial
institutions given that they compete with each other regarding customers’ accounts and assets.

—The properties of the distributed ledger allow institutions to exchange information without
revealing their identities and ensure (using the protocols) that all institutions follow the same.
Thus, all institutions are anonymous and they still proportionately pay the compensation
charges utilized for verifying a customer.

—Note that this system proposed is, in essence, a system for inter-bank collaboration. This
system, in the future, can be integrated into a broader DLT-based framework, like the very
popular r3 Corda project[2][5].

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 Hassle - Free and Secure e-KYC System Using Distributed Ledger Technology · 79

—The proposed system eliminates the high central authority fees.

—This system allows for the automation of the KYC process, acts as a source of information if
a dispute should occur, reduces settlement time, and reduces business costs.

The limitations of this system are listed as below:

—The main disadvantage of blockchain is its high energy consumption. In efforts to validate
the transactions, the network miners are attempting to solve many solutions per second. This
means many nodes are working to solve the same puzzle and hence a lot of work is done in
parallel for the same end result[13][14].

—This system uses asymmetric key cryptography which has a pair of public and private keys.
This private key is the most critical and must be kept confidential. If this key is lost, the data
privacy of the documents is lost[13][14][17].

—Blockchains are susceptible to a type of attack in which, for a blockchain network, if more than
half number of nodes in the entire network agree to a fraudulent decision, the other honest
nodes can do nothing about it. This is known as the ‘51 percent Attack’[14].

—It is much more difficult to design and develop a secure blockchain system than a similar
centralized system.

4.3 Mathematical Model

The Mathematical Model for the distribution of KYC verification costs can be seen below -

Suppose that n is the total number of banks working together with a government regulator
in jurisdiction for this network of KYC validation. c is the fixed average price to be paid for
conducting the core document verification of one customer. c is also the cost paid initially by the
home branch in the verification of documents of first Customer. The regulator also establishes a
new digital currency or token which has a fixed exchange rate against the national currency.

Now, the second bank which intends to work with this customer will have to pay half the amount
c. Thus, we can say, the nth bank will have to pay an amount equal to (c/n) to the smart contract.

The smart contract then divides this contribution into (n − 1) equal parts and issues the re-
spective amounts to the (n − 1) number of institutions working with the customer.

Accordingly, if only one bank works with a customer, only that bank has to bear the full cost
c of verification of KYC of the single customer. Other banks need not contribute in paying for
a customer who is not working with them. So, for n number of institutes, the other (n − 1)
institutes pay an amount equal to -
c
(n − 1)
and receive an amount equal to -
c
n(n − 1)
from the last institution to join. Consequently, the cost for each institution equals:
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80 · Bharti P Rankhambe and Harmeet K Khanuja

c c c
− =
n − 1 n(n − 1) n
To summarize, the verification is undertaken only once for n number of institutions and not n
number of times. Also, the total cost for conducting the core KYC verification for single customer
is now c and not (n ∗ c) as it is currently in practice[1].

5. PROPOSED METHODOLOGY
This paper utilizes a different approach of Distributed Ledger Technology (DLT)[1][2]. A dis-
tributed ledger can be defined as a record of transactions, maintained in a decentralized format,
which is also distributed across different locations or nodes. Every node of this distributed net-
work owns the same, consistent copy of the ledger. This distribution eliminates the need for a
central authority who has to monitor activities in order to avoid fraudulent activities. Instead,
the validation of activities is done by all the nodes in the network thus eliminating the need to
provide incentives to the middlemen[4] [5].

In Figure 1, three sets of the same documents were verified thrice, thus adding to redundancy of
actions. It generated costs which were again in multiples of three. In the earlier model, if the
customer had to open accounts in ten banks, the costs generated would be in denominations of
ten, i.e, number of banks. This is utter wastage of money, resources and energy as well. Now,
if we see Figure 2, the model from Figure 1 changes dramatically after application of blockchain
technology. Here, the verification process is conducted only once for any number of banks, pro-
vided that those banks are operating in the same jurisdiction that uses blockchain. This new
model for KYC verification allows for massive cutting down in costs for the banking institutes.
Customers have the advantage of not having to make frequent trips to banks to manually provide
the documents for verification.

Figure 2: KYC Verification Process after implementation of blockchain

All the information stored on the distributed ledger is secured using cryptography. This infor-
mation can be accessed using keys and cryptographic signatures[14].

5.1 Assumptions and Conditions:

There are a few assumptions that this KYC process needs to rely on [1]. They are described as
follows:
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 Hassle - Free and Secure e-KYC System Using Distributed Ledger Technology · 81

X First, the members of the group of banks functioning in the same country should follow the
same rules and regulations for KYC and should stick to the same standards for permitting the
core KYC verification to a customer.

X Second, all the financial institutions that fraternize in the system should consent to a specific
cost for conducting the KYC process. This cost might rely on the complexity of each customer
based on various factors like type of document, etc.

X Third, it is essential to have a Government Regulator. This regulator can be like the Aadhaar
Portal of Government of India to monitor the system and approve the new financial institutions.

These three presumptions are obligatory so as to warrant an appropriate incentive structure

across the participants of the network.

There are four more conditions defined further, which need to be fulfilled by the proposed archi-
tecture [1].
X Balance Condition:
The cost of conducting the core verification should be balanced across the financial institutions.
This condition ensures that the costs are balanced throughout the institutions.

X Insignificance Condition:
No financial institution should have any reason to favor another institution to conduct the
KYC verification process instead.

X Isolation Condition:
The privacy standards of the KYC process should be maintained as they are today.

X No – Counterfeiting Condition:
No institution can claim compensation without conducting the core process.

6. SYSTEM ARCHITECTURE
The proposed architecture comprises of two major sections. First is the Application Layer and
next is the Code Base. The application layer is more related to the user interface. It has different
clients set up for managing the artifact. These clients are known as ‘Artifact Client’ and every
bank has an artifact client of his own. The actual programming happens in the next major
section which the code base section. The code base section consists of a separate local database
for each bank, the common permissioned database, the smart contract, which acts like the heart
of this entire architecture, the government regulator and the blockchain which is of permissioned
and private nature. All these components of the architecture can be seen in Figure 3.

The components will be discussed in detail below[1].

Artifact Clients – This component lies in the application layer. Hence most of its duties are
related to the user interface. The actual interaction between the bank and the smart contract
happens through this client.

Local Databases – Every bank has its own local database. When the bank is considered as
the home bank for the customer, this local database is used to store the documents submitted
by the customer for verification, before the smart contract is generated. The documents package
is also stored here by each bank for their home customers.
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82 · Bharti P Rankhambe and Harmeet K Khanuja

Figure 3: System Architecture

Permissioned Database – The permissioned database is controlled by the government regula-

tor. This is used for the storage of private documents of the customer. A copy of the documents
package is also stored here for all the customers of all banks.

Smart Contact – This contains a hash which contains a digitally signed document with the
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 Hassle - Free and Secure e-KYC System Using Distributed Ledger Technology · 83

customer’s public key[14]. The clearing of the dues for all banks contributing to the KYC verifi-
cation for single customer is carried out by the smart contract.

Government Regulator - The government regulator enables the database and sets up a digital
token or currency[11]. This is a solely responsible component which actually makes the decision
whether the financial institutions are reputed and credible enough to work in this jurisdiction for
KYC verification.

Private Blockchain – This is a ledger of tamper-proof records and acts as a clearing house through
which the KYC costs are proportionally distributed among the participating institutions. Here,
the digitally signed, hashed format of the document package is also stored.

The architecture works as follows[1][2]:

(1) A certain number of financial institutions (say n, where n > 3) and the government regulator
agree to implement the new KYC verification process. At this stage, a value (amount of
money) is assigned to the token in the system. This works like a virtual currency scheme,
wherein each financial institution can exchange their tokens and receive the national currency
in return which can later be compensated with other member financial institutions for the
verification processes undertaken by them. Note that, the government regulator runs the
system, and hence only he has the knowledge of the individual activities.

(2) As soon as the customers approach a financial institution to open an account, they are handed
over a public and a private key. The first bank which performs the KYC verification of a
customer will be referred as a ‘Home Bank’.

(3) After the account has been granted to the customer, he shares his key, and the documents
to be analyzed with the home bank. To retain the confidential nature of the customer’s doc-
uments, this exchange of documents take place externally and not in the distributed ledger.
This is why, a local database is used by the home bank for storage of these documents.

(4) After the verification is done, a smart contract is generated, containing a digitally signed
document with the customer’s public key. Additionally, the home bank stores a hash of each
document used for the KYC verification on the blockchain.

(5) Finally, the home branch creates the customer’s ‘Document Package’ which contains the
hashed format of the documents of the customer along with the digitally signed hash, which
is the compressed form of the summary of the entire KYC verification process, including the
result of the core KYC verification (accepted or rejected).

(6) Additionally, the home bank creates another smart contract for this customer which contains
a list of the public keys of the wallets of the financial institutions.

(7) When a customer approaches other institutions than the home bank to work with him, he
has to share his public key and the address of the original smart contract created by the
home bank in which the result of the KYC verification is written.

(8) The new financial institution can comprehend from the smart contract, how many other in-
stitutions have worked with this customer so far.

This workflow can be seen in Figure 4.

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84 · Bharti P Rankhambe and Harmeet K Khanuja

Figure 4: System Workflow

7. HARDWARE AND SOFTWARE REQUIREMENTS

The proposed model is one use case of the blockchain platform. There are many leading plat-
forms that support programming for blockchain technology. Ethereum is one of those platforms
which has already gained popularity in the blockchain crowd. It provides both public and private
networks.

The Linux Foundation has developed Hyperledger which has seven more open source blockchain
platforms, categorized based on different functionalities they provide. All Hyperledger platforms
have a common benefit of being modular in nature.

The following platforms fall under the Hyperledger Umbrella like Fabric - used for businesses,
Sawtooth - used for Supply Chain Management”, Indy - used for Certification and Identity man-
agement and Quorum - designed for enterprise agreements. All these platforms differ in the
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 Hassle - Free and Secure e-KYC System Using Distributed Ledger Technology · 85

consensus mechanisms, permissions and other protocols[10][17][18].

Hyperledger Fabric is one of the most stable and widely accepted frameworks for blockchain
development.
Quorum is a permissioned development platform which is based on the Ethereum blockchain.
Here the question arises, why not use Ethereum instead? The reason being Quorum offering the
advantage of having private networks.
It also lets us have a choice of consensus algorithms, like Raft-based Consensus and Istanbul
Byzantine Fault Tolerance Consensus Algorithm[19].
Indy can also be used to implement this project as it concentrates basically on having a unique
decentralized identity that can exist digitally[10][18].

8. RESULT ANALYSIS
Blockchain, also known as Distributed Ledger Technology (DLT) is a centralised digital database
that can be shared with many people at the same time. This means that, this data is divided
between the members and not copied. Thus, it forms a decentralised distribution system allowing
access to all the documents on the network.

This system enables the smooth changing process. It is a promising technology that helps in
reducing risks, preventing frauds and providing transparency in operations.

Whereas, Cloud is a service in which different functionalities can be done with your data us-
ing the internet. In other words, a cloud system refers to various computing components like
software, hardware, and infrastructure that will enable the delivery of many cloud computing
services. Few examples are PaaS (Platform as a Service), SaaS (Software as a Service), and LaaS
(Infrastructure as Service). Cloud computing services are delivered through a network which is
centralized in nature. This network is nothing but the Internet.

It should be noted that Blockchain offers more opportunities compared to Cloud Computing
Technology. Blockchain can help in solving third party data usage issues.

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 86 · Bharti P Rankhambe and Harmeet K Khanuja

8.1 Comparative Analysis between Manual, Cloud and Blockchain based KYC Verification
In Table II, a comparative analysis between Manual KYC Verification, Cloud - Based KYC Ver-
ification and Blockchain - Based KYC can be seen.

Sr Manual KYC Cloud - Based KYC Blockchain – Based KYC

1 Completely paper based pro- Distributed, yet centralized Completely decentralized via
cess. network of nodes controlled management by numerous
by a single entity. anonymous individuals.
2 Goal is to store hard copies/ Goal is to manage shar- Goal is to manage a ledger of
print outs of customers’ docu- ing/viewing of documents document flow between users.
ments. using minimal computing
power.
3 Managed by Bank officials. Managed by Google Drive, Managed by Authority nodes
AWS, Microsoft Azure Cloud, already existing on the net-
etc. work.
4 Verification is done manually No authorized mediating Government Mediator is in-
by comparing hard copy with body is involved for verifica- volved specially for the veri-
the original document. tion. fication of credentials.
5 No cryptography is used. Documents are password pro- One way cryptography is
Documents are collected and tected or R/W protected. used. SHA algorithm makes
kept locked in store rooms. it impossible to tamper the
record.
6 No additional security. No additional security. Additional security is offered
by the newly added blocks
so exising record cannot be
changed.
7 No selective disclosure. No selective disclosure. Selective disclosure is offered.
8 No security “Cloud based application” ad- Actions taken on a pub-
min can incorrectly modify lic blockchain application are
details about your account logged for everyone to see.
without recourse.
9 No server. Cloud network can go down if Blockchain network never
the main server is down. goes down as some peers can
always be online in case a few
go down.
10 No tracking. No tracking. Efficient tracking of Docu-
ments and who viewed them
and in what sequence by a
permanent audit trail.

Table II: Comparison: Manual KYC vs Cloud - Based KYC vs Blockchain - Based KYC

Another comparison can be seen in Table III, about various document verification platforms
based on blockchain.
Leftmost column lists out various blockchain-based certificate verification schemes existing to-
day in the market. In this table, a comparison is made based on parameters like system features,
security features and usability features[12].

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 Hassle - Free and Secure e-KYC System Using Distributed Ledger Technology · 87

Table III: Summary comparison of various blockchain solutions

9. CONCLUSION AND FUTURE WORK

In this paper, we have suggested a distributed ledger technology based architecture which at-
tempts to minimize the total KYC costs for banks working together in a jurisdiction. With this,
the major advantage achieved is the avoidance of redundant tasks by different financial institu-
tions. This research work also gives a solution for the distribution of proportionally divided costs
incurred for that group of financial institutions which are working with the same customer. This
research suggests many opportunities to increase efficiency in the current financial system. More
specifically, this architecture provides more efficiency, significant reduction in costs, improved
customer experience and more transparency throughout the process of integrating the customer
documents into the bank database, thus improving the customer experience by dissolving the role
of middlemen. Furthermore, due to the to the decreased regulatory costs of KYC, the system
would lower the barriers to operating a financial institution, thus opening the financial market
up to further development and more competition.

The concept of blockchain technology, itself is specifically very advantageous for the banking
sector. This is because, the ledger is the actual lifeblood of banks, and blockchain is the most
secure ledger that can be offered. Blockchain framework and its protocols offer several features
like transparency, decentralization, immutability, irreversibility, resilience and security.

Apart from all the above gains, this system will allow for more efficiency, cost reduction, improved
customer experience and elimination of middle-men in the entire procedure, hence reducing has-
sles for both the client and the financial institution.
Regardless of the chosen approach here, of using the Distributed Ledger Technology, be it a
distributed database or a private, restricted, or public blockchain, this research suggests many
International Journal of Next-Generation Computing - Special Issue, Vol. 12, No. 2, April 2021.
88 · Bharti P Rankhambe and Harmeet K Khanuja

opportunities to increase efficiency in the financial system.

This system, as a whole, brings following benefits to all participants:

X Users obtain a unified identity which they can use to utilize multiple financial services. Users’
personal data is stored only with the KYC Verifier and can be easily updated but only with
the User’s permission.

X Personal data stored on the blockchain is not transmitted to third parties.

X Financial services greatly simplify the KYC process: The design lets the banks cut KYC costs
while at the same time diminishing risks of handling sensitive data.

X Verifying authorities or Governments get an opportunity to stimulate innovation in the finan-

cial sector by providing a unified and simple KYC API. The proposed solution can be used in
any setting where a smart contract based service wants to limit the set of its users according
to some criteria.
Apart from this, all other functionalities of the original Blockchain Protocol, if implemented in
banking can transform the banking field altogether. Blockchain will bring sustainable develop-
ment for sure and hence it is most probably the future of Banking Industry.

References

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International Journal of Next-Generation Computing - Special Issue, Vol. 12, No. 2, April 2021.
90 · Bharti P Rankhambe and Harmeet K Khanuja

Bharti Pralhad Rankhambe is an Assistant Professor for the discipline Bachelors in

Computer Engineering (Computer Science). She has completed her Post Graduation
from Department of Computer Engineering in Marathwada Mitramandal’s College of En-
gineering, Karve Nagar, Pune and her Bachelors in Computer Engineering from Sinhgad
College of Engineering, Vadgaon (Bk), Pune in 2012. Her first paper which has been pub-
lished and indexed on IEEE Explore is titled as ”A Comparative Analysis of Blockchain
Platforms – Bitcoin and Ethereum” DOI: 10.1109/ICCUBEA47591.2019.9129332.

Dr. Mrs. Harmeet Kaur Khanuja is a recognized Post-Graduate Teacher in Com-puter

Engineering, SPPU, Pune. She has completed Ph. D from Rashtrasant Tukadoji Maharaj,
Nagpur University on the topic, Design and Development of Effective tool for Database
Forensics through Evidence Preservation”. She has worked for Post Graduate Research
Project on “Disease Informatics and Analytics” in National Institute of Virol-ogy, Pune
during the year 2008-2009. She has established ‘Center of Innovation’ cell in Computer
Engineering Department to promote students research activities and presen-tations of
Innovative Projects developed in recent technologies.She has 13 publications in
International Journals, 7 in International Conferences, and 1 chapter in Security in
Computing and Communications, pp 201- 210, vol 467. Springer, Berlin, Heidelberg

International Journal of Next-Generation Computing - Special Issue, Vol. 12, No. 2, April 2021.