Globalization and technological progress have indeed revolutionized modern business operations, but today’s financial services industry continues to be plagued by skyrocketing incidents of fraud. Studies suggest that for the global economy, losses caused by fraudulence range at an alarming 5.13 trillion USD every year.
Intending to counter fraud and minimize losses, financial services organizations are increasingly adopting blockchain technology for its inherent capabilities of enforcing credibility and transparency. Blockchain-based technologies have proven to be disruptive when it comes to executing international payments, trade finance, and foreign exchange. It also has vast potential to support new financial transactions that are fraud-proof.
Blockchain and KYC – mitigating fraud
Both Anti-Money Laundering (AML) and Know Your Customer (KYC) processes are aimed to ascertain the rightful and legal use of global finances and play a crucial role in the prevention of fraud, money laundering activities, and other financial crimes. But KYC and AML compliance can be an incredibly lengthy and complex process, depending on the stringency of standards, and is also highly expensive. But then, lapses in customer due diligence can be highly disastrous, while delays in KYC can potentially turn away customers.
Information overload often causes banks to be conned by customers with a history of fraud with other organizations or providing fake credentials. Using blockchain can help financial institutions and banks monitor the KYC process closely – validate credentials quickly by providing protected access to customer data, and handle queries concerning KYC compliance. Regulators can be granted controlled access to check and confirm the legitimacy of accounts and financial activities, without revealing service provider or client details.
The speed that blockchain technology offers can greatly optimize the time required to complete complex KYC processes. So banks can also employ blockchain to expedite the KYC process significantly and also reduce costs related to its compliance. (Source)
Besides, blockchain is designed in such a way that enhances fraud detection. Since blockchain is a decentralized platform, it adopts a distributed storage network for customer information which is secured by sophisticated cryptographic algorithms. It allows all financial institutions on the same network to validate and vote for the legality or correctness of information provided by every customer. The status of the KYC of a customer depends on the number of votes gathered and is stored in the blockchain once verified. This tightly bound process makes it highly difficult for cyber-attackers to hack into the system or carry out money laundering activities in any form. A public blockchain can record the entire history of each transaction, allowing means of backtracking for investigative purposes.
Blockchain and escrow services – preventing fraud in payment processing
When it comes to protecting monetary transactions, escrow services have been around for ages and it is heavily implemented in various industries such as the real estate sector. However, scams in escrow services are not uncommon, which necessitated the introduction of higher and tighter levels of transactional security. Escrow services coupled with blockchain technology have proved to be effective in this respect.
Escrow services that function on an underlying platform of a blockchain network using smart contracts are termed blockchain escrow services. Since blockchain is decentralized, there are no human intermediaries here but coded transactional instructions contained in the smart contracts that execute the payment.
The biggest advantage of using blockchain escrow payments is that it establishes trust among all parties by functioning in “trustless” mode, i.e., no single entity has complete control over the transaction. So the money involved in business transactions is never regulated by any specific authority or intermediary. To activate any part of a transaction, all the parties involved need to put in their “signature”, otherwise the transaction does not process at all. This makes the blockchain escrow system transparent and highly secure. The transactional logic is pre-programmed into the smart contracts, which ensure that the total deal execution remains immutable, transparent, and protected. Only the parties involved can verify the details of a specific transaction, which significantly reduces the chances of scams.
These characteristics of blockchain escrow services, namely transparency, security, and trustless nature, are especially suited for preventing B2B scams in high-risk countries. Businesses can leverage blockchain escrow apps or platforms such as Uniscrow, to ensure protection from scams by engaging in escrow agreements with KYC-verified parties only.
Essentially, with platforms like Uniscrow, businesses can avoid the hassles of KYC and take advantage of the security it offers.
Take no chances – secure your B2B transactions with Uniscrow
Uniscrow is a popular escrow-as-a-service platform that allows the creation of online escrow accounts and conditional wallets protected by robust cryptographic algorithms and smart contracts. Despite employing highly sophisticated underlying technologies to ascertain the utmost protection of B2B transactions, Uniscrow is remarkably simple, effective, and user-friendly for sellers, as well as buyers.
If you have to engage in B2B transactions involving fiat currencies such as EUR, or popular cryptocurrencies such as Bitcoin, Ether, and USDC, you can easily leverage the Uniscrow platform. It ensures convenience and double the security of all your escrow transactions.So, sign up with Uniscrow today and lay the foundation for a fraud-proof and future-proof business right away