Anyone that has worked in a financial institution and a fintech startup knows how different these companies are. Beyond the obvious observation that things run a lot faster in the latter than in the former, one of the most significant differences is their attitudes towards technology. While established institutions often talk about their interest in innovative technologies, the reality is that their approach is usually very risk averse. They feel a need to keep large, monolithic systems online, patching holes and keeping the lights on rather than finding innovative and efficient ways to build new solutions. Of course we shouldn’t blame the people involved, who are often directed and incentivised to take this path. In this situation, their priorities and the actions they take are bound to be entirely different to those of a fintech startup looking to build customer centric services with the most modern technology stack. However, when these different types of organisation can find alignment between their objectives, great work can be done. This middle ground can be found in areas that affect both large banks and fintech startups, such as regulation. Any company working in financial services, large or small, needs to stick to a set of regulatory guidelines. However, everyone involved also knows how time and cost consuming compliance can be. Everyone needs (better) KYC Take Know Your Customer (KYC) regulation as an example. This is an important piece of regulation that reduces money laundering and criminal activity by ensuring all financial institutions know who their customers are before they start to deal with their money. In practice though, it is slow and cumbersome process full of duplication, manual processes and the potential for human error. It involves individuals sharing identification documents, such as passports, with financial institutions who then have to validate them and store this personal information in a centralized database for future reference. This is done on a individual basis with each institution, even though the process is almost exactly the same, and can take weeks to complete because people manually sort and verify paper documents. Not only is it a frustratingly slow service for the customer, it is an inefficient and costly process for the banks. In this situation, collaboration with more nimble fintech startups, who have a clearer grasp of how a technology solution could improve the process, makes complete sense. This is why a consortium of major financial institutions including , a decentralized database for blockchain solutions, to tackle the problem of KYC compliance. HSBC, MUFG and OCBC recently worked with Bluzelle Using blockchain to improve KYC that was developed by Bluzelle leveraged the Etheruem blockchain to provide a streamlined KYC process, which enabled banks to reduce the time and cost of onboarding customers, to share customer data in a secure manner and to facilitate ease of customer data management. The shared ledger application Once onboarded, an individual’s customer profile was encrypted and stored on the blockchain so that the bank could essentially ‘own’ it. However, because of the proprietary multi-party key encryption protocol that was used, the data could also be shared with other banks if the customer chose to do so. As a result, the solution not only eliminated the duplication of work that came from each bank having its own KYC process but also reduced the human error that was inherent in all these processes. With the right key privileges, a bank could quickly and easily check the credentials of any customer it onboarded, while the customer could control who they securely shared it with. Not only that, a regulator that was involved in the network could also streamline its auditing of a company’s KYC policy by also accessing the shared ledger. Banks know that regulators want them to use technology in the fight against financial crime, and the success of the application led Jennifer Doherty, Head of Innovation at HSBC, to say that the initiative was an accumulation of all these aims: collaboration, innovation and crime prevention. It just goes to show how, when the organisational objectives of banks and fintech startups are aligned, they can not only produce mutually beneficial solutions but also provide a future vision of how the market might be transformed.

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