Blockchain Technology has paved the way to disrupt different business industries over the world. Blockchain technology in banking is a public ledger used in recording transactions rather than physical ledger or a single database. It is a powerful tool used in the banking and financial sector with a mean to deliver banking and financial services to the public.
The log contains metadata, which provides the bird's eye view about each transaction. The ledger is attainable to the public via APIs and torrent sites. These data is cryptographically secured and it prevents tampering. Blockchain keeps the individual copies in sync.
Cost cutting during every transaction and reduced paperwork is an additional benefit and assurance provided by blockchain in the banking and financial sector. Blockchain in banking comes with many intuitive features pertaining to money transfers, record keeping, and other back-end functions. Blockchain in banking also facilitates with documentation tracking and validating of ownership with respect to assets digitally, creating an immutable ledger.
When it comes to banks and financial organizations, Blockchain can significantly tackle plenty of issues. Let's look at them one by one.
Payments
Blockchain in banking enables bank with more quick and accurate payments process. It would permit banks with higher security along with fewer transaction fees. Thus, Blockchain in banking helps in eliminating, a considerable number of intermediaries in the payment processing system.
Fraud Reduction
Banks and financial industries are prone to financial crimes is no more a hot news. As you see, most of the centralized banking systems are prone to cyber attacks and other threats. Access to the banking database isn’t a difficult task anymore. This major concern can be ruled out with the implementation of banking in the blockchain, as it helps in significantly reducing the fraudulent activities of the financial world. The introduction of blockchain technology would help in getting rid of the latest crimes committed online.
Know your Customer (KYC)
The blockchain in the banking system is a real time saver, in the case of banks and similar financial institutions, they have to worry about the hike in costs which they have to bear to obey the AML and KYC norms, these processes are highly time-consuming too and have to be performed separately. Currently, banks upload the customers KYC data into a central registry, which is later used to access information of the same customer. When blockchain in a banking system is adapted, the verification of a client done by a bank will be accessible to other banks which erase the repetitive hassle. Another added advantage that comes in the way is that the client information is shared and will be available to all banks within a short span of time. This helps in cost-cutting and effortless management for the administrative section.
Smart Contracts
Blockchain in banking, facilitate with smart contracts. The smart contract designed, therefore, helps in storing every pertinent digital information including the computer code. The action gets executed here, only when two or more parties enter their keys. Contracts could be created and financial transactions get executed when the code is programmed, according to the set criteria.
Trade Finance
Trade finance is still mostly based on paper, such as bills of lading or letters of credit, being sent by fax or post around the world. Information can be shared on the blockchain network and the respective parties involved in the transaction gets access to the same information.
Clearing and Settlement
The messy web that records loans and securities costs investment banks billions of dollars to run. Today, this is managed through a myriad of messages and manual reconciliation.
How Banking can benefit from blockchain technology
Blockchain for banking will make anything you do with finance a bit easier. One can access information from anywhere. Blockchain for banking will make one’s financial life much easier to manage. Blockchain technology in banking is a plethora of features like quicker transactions, lower fees, portability, etc.
1. Greater Transparency-
Blockchain in banking is public and open to view. It is possible to know what everybody in the network holds and what different transactions are been carried out.
2. Decentralization-
The network isn’t managed by the central party. When it comes to the case of the blockchain in banking, the network is driven among peers and hence the existence of a third party is out of the question.
3. Immutability-
Blockchain technology in banking stores data in a form that it is impossible to modify or alter after it is created.
4. Improved Security and privacy-
The blockchain-based network is one of the finest technology, making data safer and secure. This technology comprises of 2 security keys, one being the public key and the other private key. The public key will be accessible to each user in the network. It helps to view the user’s account balance and transaction history without altering the data and revealing the owner’s identity. The private key is shared only to the parties who are willing to make a transaction which literally means all the important information are encrypted. Security of data in Blockchain network is more guaranteed than any other existing technologies. Moreover as mentioned earlier, a block manipulation is also highly improbable.
5. Faster transaction-
Blockchain in banking allows quick delivery of service. Banks can use this technology to reduce the time required to settle transactions. Banks will complete the transaction in hours or minutes instead of taking 3-4 days for transferring funds, There will be no scalability issue anymore as transaction time taken could be as quick as few seconds.
6. Impossible loss of data-
Unlike the centralized approach, the decentralized approach reduces the possibility of data loss. Most of the data will be stored in different nodes and even if some nodes get compromised it will not affect the whole network.
7.Elimination of duplicate data
One of the finest strength of blockchain is the elimination of duplicate data. It is a public ledger where everybody gets hold of exact data copy.
8. Reduced cost
The blockchain is entirely restructuring the banking sector. The intermediaries and counterparties which takes quite a mouthful of the profit which the banks make can completely be avoided with the adaptation of blockchain. Thus banks can save money on maintaining and executing contracts. The bank to bank transactions where the intermediaries have a stronghold is made free with blockchain. Secure transactions between institutions can now be done via blockchain technology
And so on...