The Importance Of Blockchain In The Banking Sector

For years, blockchain technology has been transforming the banking industry by utilizing a decentralized system that improves storage capabilities, improves payments operations, and elevates other banking sector features. Blockchain technology is upsetting traditional banking and requiring established institutions and huge corporations to pay attention, from tokenizing various securities to employing distributed ledgers. Smart contracts created by blockchain technology automate claims and compliance procedures while also providing a low-cost, high-effective method of distributing payments. 

Blockchain Brings More Efficiency and Security To Transactions

The blockchain is accelerating and improving transaction speed and efficiency. While the technology is still in its early stages, it has the potential to benefit a wide range of industries and sectors, including banking, commerce, healthcare, insurance, and government.

For example, companies may have near-instant global access to their funds at any time and from any location; cash may be constantly moving to meet a company's working capital and liquidity requirements anywhere in the world. Gautam Jain, ‎ global head of digitization and client access at Standard Chartered Bank said: 

“This is a revolutionary technology. What we do with the revolution, the industry is still coming to terms with. Hopefully, organizations will be able to harness the power of this technology for the advancement of society and community, especially banks to make global trade and financial services much stronger to help connect communities and help our societies grow.”

For traditional banks and large corporations dealing with their disruptive presence in the banking industry, blockchain technology, combined with the rising adoption of digital banking, should be recognized as a viable banking technique. Blockchain technology has the potential to change the way people do business all around the world. It can increase trade efficiency by automating and streamlining manual and paper-based processes. Because it is decentralized and cannot be possessed by a single individual, a public blockchain can be an excellent tool for collaboration. As a result, blockchain is more than merely the technology that underpins cryptocurrencies such as Bitcoin and Ethereum.   

The True Power of Blockchain

By duplicating existing asset transactions on the blockchain, the financial industry has been attempting to experiment with blockchain. While this allows for some efficiency implications of a blockchain solution, the ecosystem implications of a blockchain solution are overlooked. In terms of infrastructure, blockchain is an open-source program that enables the real-time movement of digital assets between market participants. One can demonstrate a huge reduction in asset transfer costs and timeframes by using any selected blockchain's APIs. To help you understand how the financial services industry will approach blockchain shortly, here are five blockchain application examples in banking.

International Payments 

Bank fees apply to all international transfers. Because there are so many middlemen involved in the process: the originating bank, the central bank, the correspondent bank, and, finally, the beneficiary bank, these fees can be significant, if not excessive. Money can take up to a week to arrive in the hands of the intended recipient.

Because it is built on distributed ledger technology (DLT), with records verified by a network of computers and visible to all parties rather than maintained in a single database, blockchain is the most efficient, transparent, and secure solution to handle international payments. The payment procedure is safe since transactions on DLT cannot be changed, reversed, or tampered with. Money is sent directly to the recipient's bank, bypassing the requirement for additional correspondent banks.

Financial institutions, for example, are expanding into new areas around the world using advanced blockchain technology for worldwide payments, and are even removing pre-funding by harnessing the power of XRP through RippleNet's On-Demand Liquidity service.

Financing For Trade

Blockchain technology facilitates trade finance by allowing transactions to be completed directly between parties without the use of a middleman and with the use of digital data. The parties use blockchain technology to run smart contracts that automate commercial actions. As a result, transaction costs are reduced and transaction speed is increased. Importers and exporters keep track of their goods and assets as well.

Marco Polo Network has created the first blockchain-based, distributed network of trade financing and payment solutions in the world. They offer banks, corporations, technology businesses, and others an open enterprise software platform for trade, payments, and working capital financing solutions.

Capital Markets

Reconciliation is a labor-intensive and time-consuming process. Blockchain technology enables parties in a transaction to share information in a standard manner. The use of smart contracts in conjunction with blockchain technologies allows for a real-time check on trade instrument availability.

Axoni is a blockchain-based startup that focuses on capital market reform. It manages stock swap transactions via a distributed ledger network, which allows both sides of an equity swap to be synced throughout their lifecycle and communicate changes in real-time.

Loans and Credit Lines

To underwrite loans, traditional financial institutions use a credit reporting system. With the help of blockchain, we can see the future of peer-to-peer lending, as well as faster and more secure loan processes in general, and even complicated programmed loans that mimic syndicated loan structures or mortgages.

Credit scores, homeownership status, and debt-to-income ratio are used by banks to assess risk while processing loan applications. To acquire all of that information, they'll require your credit report from specialized credit agencies. 

Consumers are often harmed by such centralized systems because they contain inaccurate information. Furthermore, confining such sensitive data to a small number of institutions makes it extremely susceptible. One of them, Equifax, was hacked last year, exposing the credit information of over 145 million Americans. You can see why blockchain is a safer, more efficient, and less expensive way to process loan applications.

P2P Transfers

Customers can use P2P transfers to send money from their bank accounts or credit cards to another person via the internet. There are numerous peer-to-peer (P2P) transfer programs on the market right now. However, they all have their own set of limitations.

Some of them, for example, only enable you to transfer money within a specific geographical region. Others won't let you send money unless both parties are in the same nation. Furthermore, P2P services may demand high charges and may not be secure enough to store critical consumer information.

Blockchain technology has the potential to overcome all of these problems. Peer-to-peer transfer applications will benefit from the technology's decentralization. It's worth emphasizing that blockchain has no geographical limitations, allowing for global peer-to-peer (P2P) transfers. Furthermore, blockchain-based transactions will take place in real-time, removing the requirement for the recipient to wait four days for payments.

Blockchain and Banking Hand-in-Hand In The Future?

Banks are developing use cases and exploring methods to streamline their operations through the usage of blockchain to better serve their consumers as the momentum grows. Bank authorities are still interested in the issue, and talk of a Central Bank currency will only strengthen industry initiatives. While we've learned a lot from the cryptocurrencies that have gained traction, let's not lose sight of the chance to revolutionize what we do daily. In the end, the future of blockchain banking is still forming, but there's never been a more exciting time to lay the groundwork.

Blockchain must meet several criteria before becoming a mainstream banking technology. It's critical to start by putting in place the infrastructure required to run a global network using matched solutions. Blockchain will only be able to disrupt the industry if it is widely used. The investment, on the other hand, will pay off handsomely. Blockchain is expected to help banks to process payments more rapidly and accurately while also cutting transaction processing costs once fully adopted.