Three areas in the Banking Industry to Use Blockchain
Bitcoin is from where it all started, the craze of cryptocurrencies. Since 2017, it has been in full swing as Bitcoin rose to immense heights. The technology underlying Bitcoin and other cryptocurrencies is blockchain that might have popularized because of Bitcoin craze but now holds great value in itself that can transform the various industries especially banking and finance.
The traditional global banking system has a lot to benefits from the implementation of the blockchain technology. The key features of blockchain that is decentralization, cost-effectiveness, efficiency, transparency, and security can provide the necessary support to the payments, settlements and even compliance elements of banks.
The immutability and shared transaction history that means once something is recorded after being agreed upon via consensus, it can’t be altered which can facilitate the banking processes.
However, blockchain and banking services have somewhat of a complex relationship as on one hand it can transform the way value is exchanged while offering numerous opportunities as mentioned above to the financial industry. On the other hand, the technology is also viewed as a potential threat to the existing system the banking industry runs on.
Ripple is one of the active cryptocurrencies used in the banking sector. Its various products like RipleNet, xRapid and xVia are built with the sole purpose to target the time and cost efficiency factor lacking in this sector. It has even partnered up and tested their technology with big names like Santander Bank.
However, Banks are not only using the blockchain solutions provided by others, they are developing their own blockchain platform and digital currencies as well. These kinds of projects are aimed towards reducing the cost, time and capital involved in the clearing and settlement process. Apart from enhancing the speed and efficiency of different payment and settlement systems, the objective is also to improve the overall financial market efficiency.
Change is never easy and it certainly takes time but the way banks and financial services are coming together and leveraging the blockchain technology, it’s just a matter of when and how these institutional will make it happen.
Faster Settlement Time
Digital payments have become quite common today though trusting the involved parties is still a risk. Intermediary financial services are there but it slows down the process, more so when it comes to cross-border payment settlements.
Here blockchain provides an amazing solution that allows all the participants to view the same updated and immutable ledger. It doesn’t require days to make the changes in different ledgers rather blockchain streamlines the process allowing for more direct transactions while making them faster, simpler and of course more secured.
Identification of Customers
Know-your-customer (KYC) compliance is an essential function performed by banks and financial institutions to eliminate the risk of money laundering and terrorist financing. Usually, this process involves documentation and heavy paperwork. Moreover, it also consists of understanding the nature of activities to ensure its legitimacy and assessing if the customer does possess risk.
Keeping this information updated for different types of financial services is a difficult task that can be resolved by blockchain solution. The cryptographic protection provided by this technology secures customer information while providing the option to share the updated records with multiple parties. This not only simplifies the administrative process but reduces the duplication of information.
Disharmony in Global Market
The traditional financing practices involving lending, factoring, insuring among other activities along with friction in the global market makes completing the trades and obtaining finances a complex and lengthy process. The involvement of paper documents further means these procedures can take weeks to complete even a single transaction.
Blockchain help in streamlining the trade finance by allowing the trade partners to interact and transact with greater trust while saving the time and cost involved in the trade process.
The technology giant, IBM is already working on a blockchain that can be used by banks for a variety of uses. A number of banks have already joined IBM in its initiative.
Banks are increasingly getting involved as numerous blockchain-related patents have been filed by big names in the financial industry. The increased efficiency and transparency coupled with reduced cost and simplified processes have banks around the world looking to transform this sector through blockchain.
About the Author
Ankit Saxena: A computer science engineer, I have been adamantly following the blockchain and cryptocurrency industry for the past few years. A crypto enthusiast and hardcore blockchain follower. My expertise extends to content marketing and advertising through which I was able to help few notable startups. For more follow me on my site Coingape