Blockchain: Verify Once, Access Anywhere
The potential of blockchain could be harnessed to improve the quality of customer experience in banking. Here's how.
Crowded and complex — these two words accurately describe the Indian financial system.
Crowded because there are several banks, non-banking financial institutions (NBFCs), and financial institutions operating in the same space, and complex because there are plenty of rules, regulations, and processes that are difficult to understand and follow.
Institutions and regulators have realised that systems need modernising and upgrading to reduce the complexities and bring in more efficiency.
This drive for improvement has also nudged them to explore blockchain that prioritises transparency and maintains the integrity and safety of all recorded data.
For example, in 2021, India’s markets regulator, Securities and Exchange Board of India, directed the country’s central securities depositories NSDL and CDSL to use distributed ledger technology (blockchain) to maintain asset records related to bonds and debentures, as its decentralised system offers better protection against cyber attacks.
Likewise, the central bank, the Reserve Bank of India, made its first step towards integrating blockchain into the country’s financial system by launching the digital rupee in 2022, in order to make the inter-bank market more efficient.
Addressing Customer Problems
It’s encouraging to see that the first few steps towards changing the system — with the help of blockchain — at the macro level have been taken already. But it need not stop there; the potential of this technology could also be harnessed to improve the quality of customer experience as well.
Take the know-your-customer (KYC) process, for example.
It cannot be denied that one aspect where almost everyone struggles is the mandatory completion of the KYC process.
Every couple of years, financial institutions, especially banks, contact customers to complete the KYC again through a process called re-KYC (repeat KYC). Customers often gripe about this process because it feels like they are being forced to repeatedly reintroduce themselves.
This is where a blockchain-based KYC registry could be a game changer, and help banks and NBFCs avoid duplication.
How Blockchain Would Help
This tamper-proof registry would allow authorised institutions to access the verified data anytime, so that the customer does not have to furnish documents again and again.
Once a document is verified and added to the chain, you cannot modify it. This system not only eliminates the possibility of fraud but also removes bottlenecks and delays.
Similarly, the same ease could be effected in other areas of banking as well, such as opening a new account.
Aadhaar-based banking has indeed shown how simple things can be when you can open a bank account just by putting in a few OTPs.
But if you want to really understand how complex the system is, try opening a business account or taking a business loan.
Better Loyalty Rewards
Another area that could benefit from blockchain is loyalty rewards offered by banks on credit or debit card spending. Most customers do not use these rewards well because of their complex design and lack of clarity about their value, expiration, and redemption process.
Data published in ‘2023 US Credit Card Satisfaction Study’ by JD Power, a leader in consumer insights and market research, reveals 36% of credit card customers do not fully understand the rewards available to them. The numbers are worse in India.
A survey by SaveSage, a credit card rewards and loyalty optimisation platform, reveals that about 70% of Indian credit card users do not optimise the benefits available through their cards, leading to substantial missed savings.
With blockchain, loyalty programmes can become simpler. Banks could issue their customers non-expiring tokenised rewards, instead of traditional loyalty points, which could be used on various platforms for a range of products and services.
Currently, customers are stuck with a bank-provided website with limited point-redemption options.
Efficient Regulations
Also, the arrival of blockchain doesn’t mean it’s time for regulators to retire.
The new system will only help them regulate the sector better because every transaction on the chain is recorded, timestamped, and accessible to authorised parties.
That means if a regulator wants to check something about an institution or its dealings, it does not need to raise hundreds of queries, or write scores of emails. The answer is available on the chain for them to see.
Final Words
Clearly, blockchain has the potential to transform the country’s financial system because it is capable of staying true to its promise of making things more efficient and transparent. The sooner financial institutions board this train, the better it is for them.
Those who are sitting on the fence need to know that the transition won’t require them to overhaul their systems. In fact, it can make the existing system more agile, cost-effective, and harder to tamper with.
This series is brought to you in partnership with Algorand.
