Enhancing Know Your Customer (KYC) Efficiency in the Financial Sector Using Blockchain-Based Models

Abstract

Indonesia's fractured KYC processes have resulted in inefficient verification steps, high costs, and poor user experience, which remains prohibitive to financial inclusion; even amidst tremendous digital growth in the country (93M internet users and a 300% payment increase from 2018 to 2019). This paper's proposed Future KYC (FKYC) is a blockchain framework that leverages Base Blockchain (Layer 2 Ethereum) for on-chain verification hashes and encrypted off-chain KYC data storage. Using an incremental development process, FKYC is developed as a hybrid framework utilizing the combination of multiple actors, for KYC that meets this standard's requirements and allows for verification across institutions via roles-based access control (individuals, institutions, or regulators) while minimizing or eliminating duplicate or redundant checks. The prototype illustrates cryptographic separation between the public hashes (on-chain) and private data (off-chain), providing privacy while conforming to Indonesia data localization laws. FKYC is designed to provide an efficient and scalable solution for lowering costs and expanding financial access; however, to realize its potential requires off-chain integration to be completed, institutional workflows to be modified, and policy frameworks for financial institutions to collaboratively develop.