Five French banks and 21 firms, together with blockchain firm R3, have completed a fourth trial of the CordaKYC blockchain application for sharing know your customer (KYC) data.
CordaKYC is a prototype designed and built by IT and consulting company Synechron on R3’s Corda blockchain platform. It works as a “self-sovereign” model, where corporate customers can create and control their own identities, including relevant documentation. Banks can request access to the data, whilst customers can approve requests and revoke access. Any updates that are made become automatically visible to the banks that have permission to access the data.
The new trial is the fourth in a series of tests that have been conducted for the solution. The first were known as Leia 1 and 2, and more recently as “CordaKYC”.
A total of 26 firms participated this time around in what was a regional trial only, in which KYC requests were simulated amongst the group. Participants included AFTE, Allianz France Insurance Company, Alten, BNP Paribas, bioMérieux, Crédit Agricole CIB, Daher, Danone, Engie, Natixis, Natixis Assurances, Natixis Investment Managers, Ostrum AM, Pierre et Vacances, RCI Bank and Services and Société Générale.
The trial saw 232 updates sent to banks through Corda, with data sharing being approved 185 times between corporates and banks, according to Estelle Roiena, a senior associate at R3 and responsible for its business development for France.
Roiena tells GTR that the focus of this particular trial was on ensuring that the corporates’ experience of meeting KYC requirements through Corda was effective and aligned with their needs.
“While previous trials have been focused on KYC from the standpoint of banks, with this trial we’ve focused on how the service will work for the corporates,” she says. “The trial involved companies from across a very wide variety of industries, including department stores, pharmaceuticals, finance and even aerospace. This allows us to demonstrate to corporates how KYC on Corda can be responsive to the challenges of any industry and helps companies to feel confident in the process to ensure the solution is fit for the needs of all businesses.”
She adds that France was an “ideal country” for such a regional trial, given that enterprise blockchain activity in France is “accelerating”.
While R3 describes the trial as a “big step forward in making blockchain-based KYC a common reality for corporate banking”, it says the CordaKYC application is “not a product in its own right” and the goal is not to take the solution to market.
Instead, the aim is to “demonstrate the benefits” of running KYC through the blockchain for both corporates and banks, explains Abbas Ali, director of partner solutions at R3.
“Our plan has always been to develop the ‘operating system’ on which other firms will build applications to tackle enterprise challenges,” he says. “By helping the community develop a greater understanding of how KYC applications on Corda operate, we are able to support the wider ecosystem and share our learnings with partners developing applications for end users.”
Blockchain’s perfect use case?
A number of KYC applications are already live on Corda, including Tradle and Gemalto Trust ID Network, with other firms, such as Norbloc, currently in the process of implementing similar solutions on the platform.
What they all have in common is that they see blockchain as a route to making KYC– a task that is mired by time-consuming and labour-intensive manual processes and the duplication of efforts – more efficient. The figures speak for themselves: some major financial institutions spend up to US$500mn annually on KYC and customer due diligence, according to Thomson Reuters. And the amount of time dedicated to KYC efforts is growing: Thomson Reuters’ 2017 survey found that the average corporation spends 26 days a year providing KYC regulatory information, up from 23 days in 2016.
In contrast to centralised solutions that currently exist in the market, such as Swift’s KYC Registry and IHS Markit’s KYC.com, blockchain technology eliminates third-party data aggregators and centralised repositories of data. Instead, it utilises the power of the distributed, immutable ledger to drive greater operational efficiency through a digital process flow and a streamlined way to access real-time up-to-date customer data.
Founded in 2014 in New York, Tradle’s solution caters to a broad range of sectors, including trade finance. Speaking to GTR for its recent Fintech Issue, Gene Vayngrib, CEO and co-founder of Tradle, said he is convinced that a decentralised model can make the trade finance sector more agile and significantly speed up the time it takes to set up a deal.
The main goal, he added, is to help banks turn compliance pain into a commercial advantage for the banks, which can then serve their customers better.
“The majority of the conversation in trade finance is that KYC is such a pain and that it’s stopping business,” he explained. “The way we approach it is: it’s a commercial advantage. The information is sitting in a silo and we are taking it out of the silo and making it available for commercial business. Now two companies that are KYC’d by different banks can engage in trade much faster.”
Meanwhile, the idea of a blockchain-based KYC solution has been met with cautious interest from established players. For one, Bart Claeys, Swift’s head of the KYC registry, recently told GTR that KYC “seems like the perfect use case for distributed ledger technology”, but argued that it doesn’t yet solve the real issues faced by banks today. Swift itself has helped banks tackle the burden of KYC since it launched its KYC Registry in 2015. Of Swift’s 11,000 members, 7,000 have correspondent banking activities and are therefore the target of the registry. Around 5,000 have joined the centralised, non-blockchain-based solution thus far.
The challenge, Claeys said, is that blockchain initiatives have thus far been driven mainly by technology rather than compliance. “For us, at this stage, I haven’t yet seen the value addition of the distributed ledger technology related initiatives compared to what we have in our centralised solution,” he says, bringing up a widely expressed scepticism in the industry: can technology alone get banks onboard and make them want to work together towards better KYC?
“In my view, a lot of these initiatives have been initiated from a technology perspective, yet today little has been said around the level of acceptance from a compliance perspective within the banks. Ultimately, be it a distributed ledger technology-based or centralised utility, you will be required to have the backing and support from the compliance side within each of the banks,” he said.