Kathmandu, Nepal – As Nepal’s financial sector moves towards digital transformation, blockchain technology is emerging as a potential game-changer in the Know Your Customer (KYC) process. In a detailed report, Deepak Bhatta, CEO of Anvesh Technologies, highlights the importance of a blockchain-enabled KYC system, which could enhance security, privacy, and efficiency across Nepal’s financial ecosystem.

Understanding KYC and Its Role in Finance KYC is a fundamental process in finance, focusing on verifying customer identity, background, and intent. Key components include Customer Acceptance Policy, Customer Identification Procedures, transaction monitoring, and risk management. Currently, most Nepali banks rely on e-KYC, which uses digital ID verification to simplify onboarding and improve financial accessibility.

Challenges with Existing e-KYC Systems Although e-KYC is gaining traction in Nepal, issues such as data fragmentation, lack of synchronization, limited insight into customer behavior, and audit trail deficiencies limit its effectiveness. Each financial institution operates its own e-KYC system, requiring customers to repeatedly submit information and creating inconsistencies across databases.

Blockchain: A Potential Solution to e-KYC’s Limitations Blockchain technology, a distributed digital ledger, offers transparency, data integrity, and resistance to tampering. Unlike traditional e-KYC, blockchain allows banks to securely share verified customer data, eliminating redundancies and reducing costs. Customers submit KYC information only once, granting access to multiple institutions as needed, thereby streamlining the process while enhancing data security.

Benefits of Blockchain-Based KYC

1. Efficiency and Simplification: A shared ledger allows real-time access to verified customer data, reducing redundancy and improving the user experience.
2. Transparency and Control: Customers maintain control over their data, granting selective access to banks, and blockchain’s transparency builds trust among stakeholders.
3. Privacy and Security: By centralizing verification, blockchain mitigates the risk of data breaches and maintains data synchronization across institutions.
4. Compliance and Monitoring: Blockchain provides secure audit trails, allowing regulators access to necessary data and supporting compliance.
5. Automation through Smart Contracts: Smart contracts further enhance KYC by automating processes, boosting efficiency among banks.

Global Success Stories: Estonia, the UK, and Singapore Several countries have successfully implemented blockchain for KYC, proving its value. Estonia’s blockchain-based identity system streamlines public services, while the UK’s banking sector has piloted a shared identity framework. Singapore’s MyInfo initiative leverages blockchain to secure personal data.

Nepal’s Readiness for Blockchain Integration While some Nepali financial institutions are exploring blockchain for areas like e-KYC, challenges remain. Essential factors for successful adoption include infrastructure, regulatory support from the Nepal Rastra Bank, cost considerations, and collaboration among banks. Pilot projects are already underway in areas like trade finance, cross-border payments, and asset custody.

Future of Blockchain in Nepal’s KYC Should the Nepal Rastra Bank implement blockchain-based KYC, it could serve as the central administrator and regulator, establishing a consortium model across participating banks. This unified approach would enhance interoperability, streamline data exchange, and improve governance.

Blockchain technology represents a transformative opportunity for KYC processes in Nepal, offering enhanced security, privacy, and compliance. As Nepal modernizes its financial systems, collaboration between institutions and regulators will be vital to realizing the benefits of blockchain-enabled KYC, ultimately strengthening Nepal’s financial sector and improving customer experience.