Blockchain has the potential to provide a universal distributed system that can be used by several retail banks to drive efficiency and bring systems together allowing improved quality of service, opening up options for new products and services, according to GlobalData.
Sean Harrison, Retail Banking Analyst atGlobalData, says: “The need of the hour is to focus on domains where the legal, regulatory, or political environments hinder the establishment of a central controlling authority, crucial for the commercial adoption of blockchain.”
The technology could potentially transform the global retail banking system in the following areas: smart contracts, know your customer (KYC), payments, fraud reduction and customer management.
As most 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.
Harrison comments: “The fear of missing out in blockchain is palpable, but in the rush not to miss the boat incumbent banks must make sure both that they take the time to get any deployment right and create value that impacts their customers. Small-scale experiments and pilots will help shed light on any unconsidered problems and on any issues of integration with existing systems.”
“Regulators across the world, especially in the financial services sector, are expected to scrutinise blockchain technologies thoroughly throughout 2018. However, blockchain is still three to five years away from commercial feasibility, primarily because of the difficulty to establish common standards. In the long-term, the strategic value of blockchain will only be realised if cooperation among multiple players is achieved at scale,” he concludes.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.