Blockchain-Powered KYC: Transforming Credit Risk Assessment in Modern Banking

Abstract

The implementation of Know Your Customer (KYC) strategies in the financial sector enhances operational efficiency and mitigates risks associated with fraudulent activities, money laundering, and other financial crimes. While most financial institutions follow independent KYC procedures, a centralized or blockchain-based system offers a more transparent and efficient alternative. Blockchain technology, with its decentralized, immutable, and cryptographic features, ensures real-time validation and security of customer data, reducing the risk of breaches. Additionally, it streamlines the client experience by eliminating redundant paperwork. This study proposes a blockchain-based KYC framework built on Ethereum, enabling financial institutions to read and write financial data securely. The system ensures transparency and efficiency while addressing critical security concerns, such as Sybil attacks. Furthermore, it enhances financial security by implementing KYC validation for high-value transactions using KYC ID proof. Banks will generate account numbers and IFSC codes while validating users at every transaction, ensuring authenticity. Customers will have access to a real-time ledger of their transactions, while banks maintain centralized control to enforce compliance and mitigate risks.