Blockchain technology is growing in popularity as it becomes increasingly clear that it can transform traditional banking. According to TEKsystems, 99% of banks and investment firms either have interest in or are already experimenting with this new way of working.
The technology could potentially transform the following areas: smart contracts, know your customer (KYC), payments, fraud reduction, and customer management.
But how is it changing the world?
As most traditional banking systems are built on a centralised database, they have one point of failure rather than many, making them more vulnerable. GlobalData believes that blockchain’s distributed ledger would eliminate some of the current crimes being perpetrated online, as it stores, encrypts, and verifies every single bit of data in a transaction. In the event of a breach or fraudulent activity, it would be made immediately obvious to all parties that have permission to access the transaction data on the ledger.
The transparency and traceability of blockchain technology can also improve the effectiveness of loyalty and rewards schemes as part of performance management systems. After all, employee sentiment and use will only improve if rewards are actually delivered and companies and their employees can agree on whether a certain transaction has taken place.
Because of the way data is stored within a blockchain, there is no need for a central organisation to be involved. This makes it easier to transfer data and money while reducing the risk of fraud. Blockchain benefits are such that it has been predicted that “10% of GDP will be stored in blockchain technology by 2025”, according to the World Economic Forum.
Blockchain technology offers a number of advantages over conventional banking. Quicker transactions, for instance. Conventional ways of banking are known to consume a lot of time as third parties are always needed. However, blockchain can do in a matter of seconds the things that would normally take three days to complete. It has also reduced transaction costs. Because blockchain makes transactions so much quicker, it renders third parties and their charges unnecessary, which means businesses involved in multi-nation transactions will benefit.
Changing the approach to traditional banking
Nearly two billion people in the world do not have access to a bank account. This shows that the current banking system is flawed and restricted for underdeveloped countries. However, blockchain has the power to change this.
More than 75 banks are involved with The Interbank Information (IIN). It aims to minimise friction in the cross-border payments process and reduce the time correspondent banks spend responding to data-related inquiries that delay payments.
“Currently, 99% of banks and investment firms either have an interest in or are already experimenting with blockchain technology, and 10% have already implemented it into their processes.”
ICICI Bank has enlisted more than 250 corporates to undertake domestic and international trade finance transactions using its blockchain platform.
Conclusion
So, to put it simply, blockchain is certainly taking over how the banking systems operate. With the copious amount of benefits it provides, if banks don’t start to implement the technology, they will soon fall behind.
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Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.