Blockchain technology and banking revolution
Blockchain technology has become the focal point for technocrats and custom blockchain software companies as it offers a plethora of opportunities to revolutionize and radically change the way businesses work. The technology was invented back in 2008 but it has taken a big jump in implementation in various industries recently. Industry experts, technocrats, and custom blockchain companies have started investing time and resources on various use cases to showcase how Blockchain technology can be implemented in various industries. Let us discuss a few use cases of Blockchain technology for the Banking industry.
1. Online Payments and cross-border payment settlement
Transfer of money from one party to another has always been slow and expensive. It has also security concerns associated. Majority of banking systems are centralized and susceptible to cyber-attacks and security breaches. Secondly, many systems are old and legacy systems that are more prone to new ways of cyber-attacks. Blockchain technology can be leveraged to build new banking systems that offer many benefits. A shared ledger is helpful for the banks to secure every transaction detail. As the time taken by the transaction to be completed in less compared to the time taken by centralized systems, so it gives less time to someone to intervene and divert payments or to capture any transaction details.
- Distributed ledger technology helps in proper data storage, encryption and verification process
- Encryption technology can help reduce overall cyber frauds
- Data and transaction records can be made available in no time. So overall banking transactions time can be reduced
- Less time implies less transaction cost
- 24 x 7 service can be offered by banks
Ripple – RippleNet is blockchain based solution enabling payments globally
Cubercoin - LHV Bank is experimenting with blockchain through coins called “Cuber”
2. Digital identity and KYC process
Digital identity management and verification is substantially lengthy and cumbersome process. According to Thomson Reuters Survey conducted recently, banks are spending GBP 40 million a year and approx. GBP 300 million on KYC compliance and customer due diligence. The current KYC processes in the banking sector are tedious, cumbersome, slow, and has data redundancies. Chris Huls from Rabobank has suggested to implement Blockchain technology for KYC processes and store all KYC documents and statements on the blockchain ledger.
- Centralized KYC ledger can be used by all banks, insurance companies, and financial institutions
- Reduction of duplicate KYC
- It can reduce administrative cost and burdens on individual banking and financial entities
- Customer Identification is more efficiently done
- Customers has the benefit of submitting KYC once
KYC-Chain - a B2B managed workflow application enabling organizations to manage KYC processes for both individuals and corporates.
Mortgage is an important instrument for banks. Currently this process very lengthy, over-complicated, and time-consuming. Blockchain technology with a smart contract can be used for business process management and document management system. By removing the need of the third party in the loan and credit industry, money can be borrowed at lower interests directly through blockchain.
- Can simplify the overall mortgage processes
- Can result in savings between 6% to 15% for mortgage lenders
- Mortgage processing fees can be drastically reduced
Blockchain Mortgage – It can make a person ‘home-owner’ in 5 days instead of approximately 42 days which traditional sources generally take.
Blockchain and smart contracts are very useful implementation technological tools that can simplify the overall insurance process and thus reduce the overall time and cost in the insurance claim process. Currently, the insurance claim process is very complicated and time-consuming. Blockchain can be leveraged to simplify overall insurance claim processes eliminating middlemen altogether.
- Simplification of overall insurance claim processes
- Elimination of middlemen
- Reduction in time and cost
- Fraud detection and risk prevention
Safeshare Global It is the first company in the world that launched a solution for insurance which is blockchain-based.
Etherisc – It is leveraging the Ethereum blockchain to build decentralized insurance applications.
Everledger – A global startup for reducing risks and frauds related to insurance, banks, and open marketplaces.
5. Online trading
Banks can consider developing Blockchain-based online trading platforms that can enable easy exchange of assets online.
- Reduction of online frauds and security breaches
- Fast trading processes
- Overall time and cost reduction
- Minimal transaction charges
Everledger – Blockchain implementation and a digital ledger that protects and tracks assets and is being used for diamond certification for authenticity.
By providing blockchain companies with immediate access to liquidity through initial coin offerings (ICOs), the blockchain is creating a new, cryptoeconomic model of funding that unbundles access to capital from traditional financial services.
- Funding gets cheaper as middleman costs are cut.
- Flexibility for the Investor.
- Funds can be collected in both fiat as well as cryptocurrency which may attract more investors.
Oodles Technologies– They have their niche in awe-inspiring domains like Blockchain, AI, Machine Learning, etc. and deliver end-to-end development solutions.
7. Fraud Reduction
Blockchain is a new technology but still, it is getting a lot of attention as fraud rates related to money transfer are increasing day by day and this can be an efficient way to overcome.
- Real-time monitoring can be done through timestamp.
- Real identities can be retrieved as every block is linked to a person so nothing can be kept hidden.
- Third-party approval is eliminated. Anyone on the network can mine the transaction.
SecureKey Technologies– It is working on new digital identity management and attribute sharing network based on blockchain. The network will allow individual consumers to control what information they share, while organizations can efficiently validate a customer’s identity and arrange new services.
Blockchain technology has huge potential to turn around the way the banking system works. We also discussed use cases where banks can simplify their business process and increase business security thus boosting the business and can lower the overall expenses and transaction charges. However, there are so many challenges that have to cover for Blockchain technology before banks and financial institutions can fully accept it as technology. The biggest issue is privacy. In the open ledger, the consumer data is made public, and thus in can threaten the privacy of individuals. It also faces regulatory uncertainty. There is no central regulatory body or institution that can monitor and regulate the blockchain protocols.
Though there are certain challenges, Blockchain technology is surely going to radically change the banking industry and its processes.
Custom blockchain software companies are going to play a vital role to revolutionize the same.