October 12, 2023
5 min read

KYC Data Storage: Centralized vs. Decentralized

Understanding Centralized KYC Data Storage

Know Your Customer (KYC) is the process that financial institutions and other organizations must perform to verify the identity of their customers. KYC processes require the collection and storage of customer data, which can include personal information, government-issued documents scan, and financial records.

Usually, entities required to perform KYC use external KYC providers to conduct the activities connected to the customers’ verification.

KYC data, after being processed, is normally stored in centralized databases owned and maintained by the KYC provider or the financial institution. The storage of KYC data can vary depending on the specific circumstances, but typically both the KYC provider and the financial institution store the data.

The KYC provider, such as a third-party verification service, is responsible for collecting and verifying customer data and then storing it in its servers. In some instances, KYC providers only store the verified information temporarily while in others the storage is continuous. In any case, the verified customer data is shared with the organization that requested the verification.

The organization also typically stores the KYC data in its own centralized database, as they need to have access to it for ongoing compliance and risk management purposes.

Exploring the Benefits of Decentralized KYC Data Storage

If both the KYC provider and the organization store a copy of the verified KYC data, they share the responsibilities connected to the storage of personal information under the relevant privacy and data protection legislation. The specific arrangement, such as the definition of the roles, will depend on the agreements between the parties involved and any regulatory requirements that may apply.

Relying on centralized storage, whether by the KYC provider or the organization, has the advantage of being easier to manage and secure, but it also presents several potential vulnerabilities, including the risk of a single point of failure and exposure to data breaches.

These are some of the reasons that lead to growing interest in using decentralized storage solutions for KYC data. Decentralized storage relies on distributed networks of nodes to store and manage data, rather than relying on a single centralized server. This approach has several potential benefits for KYC providers, including increased security, privacy, and resilience.

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