Blockchain is the most talked-about technology in the digital world right now! Next-gen blockchain tech has a high potential to disrupt industries, drive major changes and create new business opportunities. The unique characteristics of blockchain have changed how we perceive problems and provide the right solutions to enhance the growth of commerce.
Once we consider the specific traits of blockchain, it only makes sense that the banking sector will be leading in the adoption of the real potential of blockchain technology. Multiple banks have initiated to leverage blockchain benefits in banking and do not want to left behind the cutting edge technology. Also, they believe that blockchain solutions can blown away the disputes in banking and invent a new customer-oriented business model.
Let’s dive into the blog and get to know how banking can be improved with blockchain solutions and analyze if it will be really a boon to banks.
Essence of Blockchain
Initially, let’s have a clear cut understanding of the blockchain.
Blockchain is an indestructible ledger technology that collects every transaction data and allows access to various network participants. Blockchain uses encrypted cryptography technology to authenticate, authorize, and perform transactions, making them secure, permanent, and transparent. Also, blockchain enhances more user control rather than single central authoritative control.
10 Possible Ways Blockchain Could Impact Banking
Automated Reliable Process
We know that the traditional banking system is entirely dependent on paper works, bulky manual processes, and bureaucracy. These kinds of fickle systems are much prone to counterparty risks and security threats. We may already have heard the news about these concerns, the safest banks lost huge amounts of money without the customer’s knowledge. These cases show that traditional banking is not efficient because there is no streamlining and much exposure to way out for hacking threats.
To settle this kind of dispute, blockchain is considered the ideal solution. Let’s imagine the bank we use will move to a blockchain-based system, all the transactions become automated, immutable, and secure, since reliable smart contracts allow two parties to come to an agreement and carry out the transactions without middlemen’s intervention. All the manual processes will be transformed into an automated set of implementations and ensure security in transaction flows. The central point is the adoption of blockchain will facilitate streamline, secure, error-free, and efficient transactions.
Secure Digital Records Storage
We all know that banking comprises all financial analytical calculations. Conventional banking systems still rely on paper works such as invoices, letters of credit, or bills. Totally, it is inefficient because there are many chances for a single point of failure, data hacking, and data leakage. It is much prone to fraudulent vulnerabilities and financial risks.
When adopting blockchain in banking, there would be decentralized data storage where all the records related to financial transactions are kept secure and reliable. Now, the banking process gets simplified and streamlined with the help of blockchain. Once the data changes occur, it is visible to all blockchain participants, and it helps to minimize data losses, hacking, and financial threats.
Smart Digital Identity Verification
In the digital world, there is a huge increase of scams in every field. When it comes to financial deals, security threats are a major concern we need to settle. Today, the current banks regularly update their regulations and follow strict measures to enable secure banking and avoid risky situations. When we approach the bank to avail service, they keep a list of formalities to authenticate the real users and cater their services. But, it is disliked by customers due to the long time-consuming processes, cumbersome manual processes, and massive paperwork submissions. To satisfy the customers as well as to enable secure identity verification, the banks are seeking the right technology.
The right answer will be Blockchain. A distributed decentralized ledger allows users to share their digital identity documents linked with blockchain globally. While adopting blockchain, it can record every transaction and store it across different nodes located across various places. Also, it is secure, verifiable, and immutable. So, the user can share the verified digital identity with other banks easily and effortlessly. It is beneficial to users and providers by saving lots of time that occurred in authenticating and authorizing users.
Faster Payments
The next big thing is the payment section. When we perform global payments, there will be a huge process, long time consumption, and a lot of third-party intervention to verify and authorize the transactions. Also, there will be increased possibilities for data hacking, data loss, and fraudulent vulnerabilities.
When implementing a blockchain-based banking system, peer to peer bank transfer will be activated to allow users to connect directly with their peers and carry out transactions. It could eliminate third-party participation and helps to reduce the complexities in global payments. Users could perform all the global transactions within a minute. Also, it could ensure security in all transactions.
Lower Processing Fees
In conventional systems, transaction fees will be higher since it is deducted at many levels. When the payments are dispersed from the sender, they need to be transferred through a lot of intermediaries to get verification and approvals. It consumes a lot of time and money when performing cross-border payments.
When coming to the blockchain, there will be no need for middlemen intervention to authenticate the transaction. Users are allowed to send money across borders easily and conveniently through blockchain networks. It could cut down all the middlemen costs, high time, and security risks.
Accounting and Auditing
Generally, banking is composed of financial transactions, computations, and analytical operations. Currently, a lot of chances for flaws occur in accounting and auditing the processes. Consider, a user performs transactions from the account, it will be passed through intermediaries and cumbersome manual processes. It increases high chances for data alterations, data leakage, data hacking, and fraudulent operations. All these can lead to inefficient, inaccurate results.
In contrast to this, blockchain will use smart contracts to automate, streamline the banking process, and help to get reliable, error-free, and efficient results.
Secure Finance
A lot of disputes in banking can pave the way for security-related concerns and financial losses. A centralized control system is highly exposed to a single point of failure that could result in data manipulation, data thefts, and fraud. The hackers can easily take hostage of a single server and fetch the user’s personal data for the usage of fraud activities.
Many experts believe that the blockchain is a highly secure technology that has a high potential for solving security problems. As a decentralized ledger, it could provide enhanced users control rather than single authority control. It uses highly encrypted cryptographic technology to authenticate and authorize the transaction, avoiding all fraudulent activities and enabling high security to banking.
