Decentralized Identity (DID) for Know Your Customer (KYC) Process in the Banking Industry

Abstract

KYC is vital for financial institutions worldwide to prevent illicit activities. The current process is slow, ineffective, and reliant on centralized databases. This study explores decentralized identification (DID) as a solution. DID enables efficient access to verified user credentials while enhancing user privacy. Thus, enhancing the speed and efficiency of the overall KYC process. The study employs the Design Science Research approach to systematically design the decentralized identity solution for KYC. Our solution employs blockchain and cryptographic technologies to enhance the DID process. Credentials submitted in the DID system are verified by a DID resolver, then stored and managed by an identity hub through the employment of a blockchain-based KYC contract. Ethereum JSON-RPC is employed to facilitate the DID authentication process. We also implemented zero-knowledge proofs to enhance users’ privacy. The result of this study contributes to the advancement of KYC by offering practical insights, design guidelines, and evaluation measures for the implementation of decentralized identification.