Blockchain in banking promises a higher level of decentralization, transparency, and security. Learn how this technology helps the banking industry tackle the main issues this sector faced.
Maximum financial services sectors have invested substantially in many services and apps because of security violations, digital threats, and network downtime issues, among other problems that may arise.
Since the banking sector has been always the foremost mover, it has embraced new technologies for moving from traditional banking practices to feasible banking services. This is why Blockchain in banking has gained much popularity from every corner. It has grown as one of the most pioneering technology and has great potential to transform the operations of the financial sector in recent years.
General Issues Faced By the Conventional Banking Industry
Banks and other financial institutions are mainly accountable for keeping our money secure and safe whenever we require it. To do this successfully, they need many procedures and mediators that may cause the entire banking procedure be quite slow and costlier. Moreover, the inclusion of many manual procedures and human mediators makes the financial sector susceptible to errors, risks, and fraudulence.
Blockchain in banking promises a higher level of decentralization, transparency, and security, which are important traits of a technology that can fix issues faced by the conventional banking industry. Now let us take your look at several ways in which Blockchain in banking can help to cope with these challenges!
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How Blockchain Is Reshaping the Banking Industry
Blockchain could be specifically competent in fixing the most noticeable problems encountered by the banking industry. Let us list those problems and the ways Blockchain technology can help, below:
1. Enhanced Security and Fraud REDUCTION
Banks and financial companies around the world are continually annoyed with incidents of cyber attacks and financial crimes like bank account hacks, data leakage, and fraud, just to name a few. Blockchain technology is developed on cryptography standards of hash functions, private keys, and public keys. Furthermore, they are formed on a shared ledger system that implies there is no complete reliance on only a single body.
This helps banks abstain from the attacks from hackers and fraudsters, and secure transaction data. Since Blockchain technology allows quicker transactions, it means there is less time for hackers to intrude. Moreover, when a ledger entry is verified and preserved, it cannot be possible to interfere with it due to the shared and decentralized ledger system.
2. Quicker Payments and Transactions
Conventional banks allow the transfer of money throughout the world. Nevertheless, the present system takes at least 1 to 3 days in verification and settling transactions between 2 parties.
Blockchain allows money transfer by easy ledger entries without requiring a centralized mediator for verifying it. This implies banks can utilize a Blockchain-based solution for lowering the time needed for verifying and resolving transactions. With the advancement of technology, transactions can also happen in real-time. Hence, banks can lower their processing time and provide their clients access to borderless, quick, and affordable payments.
3. Authentic and Enhanced Data Quality
Banks need to keep up with a massive amount of information. In the conventional structure, the issue occurs because a lot of banking data lies in more than a single place. Thereby, many parties in several areas can change the same data. This leads to either outdated or incomplete data. This is an easier description of what occurs in real but the fact is that the systems are much complicated and it leads to chaos when the information is ill-maintained.
Modern Blockchain technology can preserve any type of data. The utilization of Smart Contracts moreover allows data for being used and transformed just as per the pre-decided rules. The shared ledger system permits everybody to work on a similar data copy. This enables more secure and quicker transactions with authentic data.
4. Enhanced Credits and Loans
Conventional banks provide loans depending on your credit rating that is offered by third-party companies. This type of system is sometimes unfavorable to clients that might affect their capacity of getting loans badly.
Using Blockchain in the banking sector, financial entities can get a decentralized and cryptographically safe registry of the last payments of a user. They can utilize this for measuring the global credit score and offer loans more effectively and cost-effectively to a wide array of clients.
5. Lowered Expenses
When it comes to doing transactions and interactions, the conventional banking sector has many middlemen and intermediaries. These interactions with middlemen maximize the ultimate expense of a transaction. The utilization of Blockchain in banking helps perform admin functions, maintain and carry out contracts. This helps lower the communications with intermediaries. As a result, this helps decrease entire expenses.
6. No Complicated Paperwork
A lot of paperwork is engaged in the great majority of financial affairs. And maintaining invoices, bills, and contracts is responsible for this involvement. The concept of Smart Contracts influences Blockchain technology for making contracts that decide, terminate, and update the values of stipulations. This type of technology can ease the bulk of the bureaucracy and make all financial transactions hassle-free.
7. Reduces the Know Your Client (KYC) Expenses
Albeit KYC is an authentic ID verification solution, it drains lots of money from organizations. Continuous updates take a lot of time and banks require turning to one database for accessing current data regarding the clients of other banks, so they cannot update their data before the database gets updated also.
However, using Blockchain, every transformation in client data is refreshed automatically for every system member. Hence, financial institutions would not need to restart the KYC protocol when somebody registers as a client. And the update would be practically immediate, which would lower waiting time.
Present Adoption of Blockchain in Banking
Blockchain is fast acquiring more supporters. Nearly 84% of representatives from 15 territories said that they already applied this ledger in some capacity. Especially, the USA is encountering great amounts of adoption, with big names showcasing interest. For instance, three are different among all. Let’s examine them below!
- Goldman Sachs is making high investments into a project named Circle. Circle aims to fix the volatility issue that affects cryptocurrencies to this day. In Blockchain history, this project is one of the most funded start-ups, which is hopeful, to say the least.
- The Bank of America is displaying an interest in the capacity behind Blockchain technology. The institution has filed a patent associated with Blockchain to the US Patent and Trademark Office. They aim to make a ledger that makes records secure and offers data validation.
- The Quorum division belongs to JP Morgan Chase. It works as a deployed ledger and the Smart Contract Facilitator. The prime concern of Quorum is growing Blockchain solutions and studying innovative ways for applying it.
The Future of Blockchain in Banking
After checking the present trends, we can anticipate even more acceptance and build clear up all bumps in the application. In 2019, Global FinTech Report suggested that a massive 77% of FinTech businesses planned to use Blockchain in banking, displaying that many people feel amazed about what Blockchain can do. As per the PwC report, almost 24% of financial representatives worldwide are familiar with Blockchain.
Moreover, with the aforesaid projects (Circle and Quorum) coming from such big institutions, individuals will possibly acquire more faith and aware of Blockchain as a sustainable process of platforming their financial tasks. As it presently stands, this technology needs some work for integrating efficiently. Energy consumption, interoperability, and scalability are a few instances of the hindrances FinTech institutions should overcome for experiencing productive outcomes from Blockchain.
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Blockchain technology has gone so far in a very short period. In this time, it has reached notable milestones and as it appears, the single way for it currently is forward. All in all, the prime Blockchain advantage for the banking industry is that it offers the security level and accessibility every financial institution could want for. And for this reason, the banking industry will be reshaped by using Blockchain technology in the years to come.
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