DECENTRALIZED IDENTITY (DID) ARCHITECTURE FOR SECURE KYC IN U.S. BANKING AND FINTECH ECOSYSTEMS

Abstract

The increasing complexity of identity verification in U.S. banking and fintech ecosystems has highlighted thelimitations of traditional centralized Know Your Customer (KYC) processes, which often involve redundantdata collection, slow onboarding, and increased risk of data breaches. This study explores the design andimplementation of a Decentralized Identity (DID) architecture to enable secure, privacy-preserving, and usercentric KYC. By leveraging self-sovereign identity (SSI) principles, verifiable credentials (VCs), andcryptographic proofs, the proposed framework allows individuals to control their identity data while banks,fintechs, and regulatory authorities can authenticate users efficiently and compliantly. The architectureintegrates permissioned networks, identity wallets, credential issuers, and verifier nodes, supportinginteroperability with existing financial systems. Security, privacy, and regulatory compliance—including AML,FinCEN, and OFAC requirements—are embedded through robust cryptography, zero-knowledge proofs, andselective disclosure mechanisms. The study concludes that DID-enabled KYC can streamline onboarding,reduce operational costs, enhance user privacy, and strengthen overall financial ecosystem trust, providing aviable path for next-generation identity verification in U.S. banking and fintech.