With blockchain being one of the most disruptive technologies today, it’s easy to understand why most industries aspire to implement its applications in every little aspect of their internal processes.
The banking industry is no exception at the movement and thanks to blockchain technology, we can enjoy smoother, streamlined, and fast banking services – known today as Fintech. Blockchain can take the banking industry to a whole new level, but let’s see below how.
Blockchain – What Is It?
Let’s see first what is blockchain. The technology was used initially in cryptocurrencies, and it is a decentralized database holding records of digital data in such a way that makes them what specialists call “immutable”. Blockchain offers easy access to users, but the data cannot be modified or deleted, allowing permanent track and proof of different events that take place in the database.
According to Statista, blockchain in banking has been used for different purposes and offers a series of opportunities to new-age financial institutions. Some of the most frequent usage opportunities identified by Fintech is international money transfer, security clearing and settlement, and anti-money laundering opportunities. Closely followed by increased transparency opportunities and fraud prevention. Overall, blockchain and banking seem to be a perfect pair for a number of reasons.
According to a study conducted by Accenture in 2017, some of the most influential baking institutions in the world plan to implement blockchain technology in banking in the following years. The expected result is a decrease in the operational costs by 30%.
In the following paragraphs, we analyze how blockchain impacts banks and their operations to their core.
Traditional banks struggle currently to fill in several gaps created by the system and multilevel hierarchy, inherent to banking institutions. Poorly-stored documents and data, and inaccessibility are two other issues that blockchain has the potential to solve. A decentralized system like blockchain databases allows faster transaction operations and clear mechanisms and protocols to increase the speed of all transactions.
The banking sector might be the one to benefit the most from blockchain adoption. According to Accenture, some of the biggest banks in the world estimate to save up close to $10 billion by blockchain adoption in the clearing and settlement sector of the industry.
All central banks in the world contemplate the prospect of adopting cryptocurrencies, virtual coins developed by each bank on the Bitcoin model. Because Bitcoin cannot be regulated by any monetary policies, the development of national virtual currencies has been vehiculated. This is expected to reduce the popularity of Bitcoin and other standalone cryptos and offer more stability to central monetary institutions and national currencies. It also offers central banks complete control over monetary policies and allows them to implement adequate financial regulations.
Banks seem to fully realize the objective benefits brought by cryptocurrencies over physical currencies – lower transaction costs, faster operations, and higher transparency and this is another reason why they contemplate the development and implementation of nation-wide digital currencies.
All these advantages are making financial bodies all over the world to at least consider the implementation of digital currencies at national levels and the development of adequate payment systems for it.
And speaking of payment systems, traditional ones like those existing today are far from being efficient for operating with digital coins. This also motivates different central banks to find alternative payment methods where cryptos can be used. All three financial services available today can be brought to perfection by digital currency adoption.
· Credit card payments/internet payments;
· International banking transfer;
· Offering banking services to people without any ties to banking institutions.
All the processes above pose challenges in today’s banking environment as they were not initially designed for digital use. Take credit card payments, for example. Credit cards were invented long before wide Internet adoption and were initially designed for physical payments, not online payments. Blockchain technology and crypto currencies will make smoother transactions and lower operational costs available for all the parties involved possible: banks, clients and businesses.
Blockchain for business is able to solve one of the most debated issues in the banking and business sector: identity theft and fraud attempt. The identity of the person behind transactions, loan applications and even the simplest transactions is undoubtedly important.
Crimes like identity theft, fraud and money laundering cost banks and businesses billions of dollars, yearly. The accuracy and efficiency of outdated identity authentication processes like background checks cannot be trusted, in this context.
Because of its specifics, blockchain is able to deliver measurable results in cybercrime prevention and identity authentication flaws in the banking sector. This is due to save the entire industry billions, yearly.
During the past few years, banks have tried to implement a decentralized system that can be easily updated and checked to verify customer identities, and the identity of those behind different transactions. With blockchain technology and its wide adoption, this goal seems to be achievable in the following couple of years. Blockchain technology adoption will make identity verification easier and streamlined, and will offer businesses and banks the certainty their clients are legitimate individuals.
Blockchain is a technology with high effectiveness in improving the loan sector in the banking industry. It is calculated that a loan application in the US is processed and settled in up to 20 days. In case of an early repayment or loan transfer between banks, banks still carry all their communication through fax. A series of credit institutions are now contemplating the implementation of blockchain technology to streamline the loan market. Smart contracts are due to change the necessary time to process and implement a contract but also increase the effectiveness across the entire sector.
Blockchain technology is due to change the banking sector furthermore. Fintech and smart contracts, higher transparency levels and streamlined processes are only some of the greatest perks brought by this disruptive technology.