Blockchain for Banks: Revolutionizing Financial Services
There are a lot of areas where the implementation of Blockchain will make processes more transparent and effective. But there is the only one which this technology will truly revolutionize — banking industry. Traditional banking has used all its potential, while Blockchain banking is expected to generate new products and services.
It’s interesting to observe how such centralized structures as banks are shifting towards decentralized solutions like Blockchain. The banking industry was perhaps the most opposed to this technology — it seemed to be a direct competitor that will take away their control over finances and personal data of their clients. But soon major players started to see Blockchain not as a rival, but as a viable alternative of outdated technologies that will benefit both banks and their customers. A growing number of banks are now adopting blockchain-powered technologies to improve their services and level up the business efficiency.
Nine in 10 executives said their bank is currently exploring the use of blockchain.
according to Accenture
Let’s take a look at the reasons why banks are massively incorporating Blockchain:
1. Quick and Cheap Cross-Border Payments
Nowadays we can send a message that will be delivered to another person instantly, or order food and get it in 30 minutes — there are dozens of things that became fast and convenient with the development of the technology. But there is one area that hasn’t improved much — international money transfers. Bank clients still pay rather high fees (7–10% of a transferred sum) and hidden commissions, waiting at least a few days until their payment gets to the recipient. Blockchain banking is a solution.
More than 100 global banks have a partnership with Ripple to make cross-border payments cheaper and faster. Ripple’s cryptocurrency — XRP — provides liquidity for cross-border transactions. Using it, banks don’t have to maintain foreign accounts — they buy XRP coins with dollars or euros and make a transaction. XRP are exchanged into the local currency and a recipient can get the money in the bank.
2. Improved Digital Identity Verification
Identity management has become a key concern. Now people can open a bank account or order credit card with their smartphones. But how to check if the person behind the screen is the owner of the account? Lack of reliable methods gives fraudsters a new potential for stealing personal or financial data.
Blockchain, being impossible to hack, ensures quick and smooth verification process. But what about real blockchain banking use cases? Well, SecureKey is used by several banks (and hopefully will be adopted by many more) to enable clients to assert information in a convenient and private way. This blockchain-powered bank provides a digital credential which banks can trust ensuring the data can be shared only with explicit user consent.
3. Enhanced security and Fraud Prevention
Blockchain technology for banks improves the security of banking operations and user data in a few ways.
- quick transactions leave less time for fraudsters to intervene in the operation.
- there are two security keys for every transaction — a public key available for everyone, and a private key that is only shared between the parties of the transaction. Private key is unique for every transaction — even if it’s stolen, it can’t be used for further transactions.
- Blockchain itself is a digital ledger and not a single part of it can be changed or deleted. That eliminates the possibility of fraud.
- Decentralized nature of Blockchain doesn’t allow storing all data in one location removing the possibility of identity theft.
4. Digital Bookkeeping and Audit
Banking and accounting require a lot of paperwork the digitalization of which occurs rather slowly. Blockchain can simplify and streamline banking audit — organizations can record their transactions directly into a register, with all entries logically distributed and cryptographically protected. Blockchain records are impossible to fraud or to steal — it’s the most reliable and transparent analog of bookkeeping.
Blockchain itself is a ledger that automatically records all transactions — and there is no option to delete them without being noticed. And what is beneficial for bookkeeping — transactions are recorded with all information about them — date, time, amount, sending and receiving party addresses.
5. Reduced Costs
Implementations of blockchain in banking decrease the number of interactions with counterparties and intermediaries. Blockchain technology doesn’t require an administration. As a result, clients don’t have to pay enormous fees, while banks don’t have to pay for additional services.
It is vital for the banking industry to investigate new technologies that will help improve existing products and services. If banks won’t change towards innovation they will be disrupted by new coming fintech startups.
Financial institutions started to realize the potential of Blockchain, but banks need time to embrace and incorporate it. Once adopted, it will accelerate the technology and force banking landscape to evolve. Banks have to adopt a new approach and innovative thinking to make the most of Blockchain revolution.
Blockchain provides significant cost- and time savings and brings a new level of effectiveness. And if you are ready to implement Blockchain into your business or want to get a consultation to know more about it — our team is ready to help. Feel free to contact us.
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