Block chain has become a buzzword in recent years, which is not surprising given how it is changing the dynamics of many industries. Blockchain technology is expected to transform the way we do business, not just in the banking industry, but also in healthcare, government, retail, and other industries. A block chain, in essence, is a distributed ledger of records or public databases that are openly shared among disparate users and create an immutable record of their transactions. These transactions are cryptographically secured to prevent tampering.
Blockchain has the potential to completely transform the banking industry, making it more transparent, efficient, secure, and cost-effective.
Here are some of the ways blockchain technology will impact the banking system in the future:
By accelerating international transfers, blockchain has the potential to make international transfers and monetary transactions more efficient, cost-effective, transparent, and secure. Currently, money transfers from one country to another can take several days and involve a number of third parties. Each of these parties receives a cut of the transaction. This means that the sender may have lost a significant amount of money by the time the money arrives at its destination. Blockchain technology, for both international businesses and consumers, enables faster and simpler peer-to-peer transactions that are more effective, for example, through a Bitcoin wallet.
Block chain is essentially a digital ledger that records transactions between two parties in an unalterable manner. Each transaction is validated by computers on a network before it is added to the blockchain and cannot be changed or tampered with once completed.
- By enhancing security and reducing fraud
Blockchain can also aid in the elimination of fraud by creating a clear audit trail. It also has multiple redundancies, making it nearly impossible to change any information that has been uploaded to this network.
Because the Blockchain network is maintained by thousands of computers, there is no centralised point from which hackers could attack the network and change data without leaving any evidence. This feature of blockchain makes it extremely relevant in the current global scenario of rampant cybercrime and widespread ransomware attacks, which can compromise sensitive information and cause victims to lose hundreds of thousands of dollars.
However, you should continue to protect your Windows and use a VPN for added security. You should also consult our Ransomware Checklist to ensure that you have a proper cybersecurity strategy in place in case you become a victim of a cyber-attack.
- By lowering bank and customer costs
Blockchain has the potential to significantly reduce the cost of banking services while also improving product quality. Today, financial institutions are looking for ways to use this technology to solve speed and cost issues. When using blockchain, some tasks can be automated. The blockchain is a distributed database that is safe, transparent, and simple to use. These characteristics enable the automation of some banking-related processes.
- By lowering human error
According to various reports, human errors in accounting, record-keeping, and reconciliation are among the leading causes of fraud. In terms of security operations, it is frequently an unintentional human error or simple negligence that has resulted in massive cyber security issues. Blockchain uses an automated method to record transactions that cannot be changed later. Many manual processes will be phased out by using this technology, reducing human errors, improving efficiency, and mitigating the impact of cyber threats.
- By Making Lending More Convenient for Lenders and Borrowers
Lending is an essential component of banking. Maintaining liquidity, or the ability to pay for cash requirements, is critical for both corporate and retail customers. Furthermore, lending is one of the revenue generators for banks. This implies that it is critical for banks to get this right. Lending will gradually become easier with blockchain technology because transactions will be settled instantly. This can help to avoid issues like double spending and defaulting. Blockchain technology has the potential to reduce the time it takes to open a bank account from days to minutes.
- By possibly removing middlemen and commissions
Blockchain enables people to trade directly with one another by using a shared ledger to keep track of transactions. This eliminates the need for intermediaries such as stock exchanges and banks. If banks are cut out of the loop, their stock prices will inevitably suffer. However, it is less clear for middlemen such as stock exchanges, which provide essential services for trading shares. They may still play a role in providing liquidity and security to blockchain-based financial systems, but with the advent of blockchain technology, the days of profiting from broker fees are likely to be over.
- Variety Useful Cases
From voting to business contracts, blockchain can be used for anything. It is a recording system with no centralised authority, making it nearly impossible to hack and tamper with. The data stored in a blockchain system is shared across a vast network of computers, and it cannot be changed unless the majority of computers in the network agree.
- Finance for Trade
Trade financing is another area where blockchain is expected to have a significant impact. Trade finance encompasses all financial activities related to international trade and commerce. Did you know that in many trade finance transactions today, invoices, letters of credit, and bills are still used? You can complete this task online in many order management systems, but it takes a long time. By digitising and eliminating the time-consuming manual process, blockchain can help to streamline the trading process.
- Credits and Loans
To underwrite loans, traditional banking institutions use a credit reporting system. Thanks to blockchain, we can see the future of peer-to-peer lending, as well as faster and more secure loan processes in general, and even complex programmed loans that can resemble syndicated loan structures or mortgages. To assess risk, banks that process loan applications consider factors such as credit scores, homeownership status, and debt-to-income ratio. To gather all of that information, they’ll need your credit report from specialised credit agencies.
- Quicker Payment
Faster payments with lower processing fees are a sure way to increase customer satisfaction. As a result, BFSI institutions should rely on emerging technologies to provide a decentralised payment channel. Banks may provide better service, develop new products, and eventually compete with innovative fintech start-ups by offering better security and lower payment. Additionally, by implementing blockchain, banks will be able to reduce the need for third-party verification and accelerate the processing of traditional bank transactions.
- System of Settlement and Clearance
Blockchain has the potential to enable banks to settle transactions directly and track them more effectively than traditional methods such as SWIFT. Because of the way our financial system is set up, a standard bank transfer takes a few days to settle.
Many banks face logistical challenges when it comes to transporting money around the world. Before reaching its destination, a basic bank transfer must pass through a complex chain of intermediaries, such as custodial services. Bank accounts must be reconciled throughout the global financial system, which is comprised of a vast network of funds, asset managers, dealers, and other businesses.
How will blockchain impact the banking industry in the future?
Blockchain must meet a number of criteria before becoming a mainstream technology in banking. It is critical to first construct the infrastructure required to run a global network using matching solutions. Only through widespread adoption will blockchain be able to disrupt the industry.
However, the investment will be well worth it. Blockchain, when fully implemented, is expected to allow banks to process payments more quickly and accurately while also lowering transaction processing costs.