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.
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.
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.
We are aware that traditional banking is not transparent and it can drive inefficient outcomes. Imagine, a user sends money to someone across the border, he would not get a proper update from the bank regarding the transactions. Users may not know if any frauds or malpractices appeared in the progress of the transaction. It is such a long time consuming, clumsy, and vague system.
Blockchain is a technology that is well suited to implement transparent banking. Being a distributed decentralized ledger, it can hold all the transaction records in different places rather than a single storage system. Once that data is added to the block, it is visible to all blockchain participants and the data can be viewed in real-time. It could reduce all the fraudulent possibilities associated with banking and helps to implement transparent, traceable, and efficient financial transactions.
Loans and Settlements
The loans section is a significant part of banking that can drive passive income. In traditional banks, loans are catered to users who have remarkable loan credits. While verifying the credits report, there may be a lot of chances for data misinterpretations, data mishandling, and frauds. It can lead to wrong loans credits which could influence the financial system of banking.
In the future, blockchain-based banking will run based on smart contracts that would pull two parties to an agreement and carry out the loan processes easily and hassle-free. Authentication and approvals have become automated and it could eliminate the counterparty risks as well as ensures security in loan crediting.
In the current market, an increasing number of banks allow users to migrate from one bank to another. Customers would likely prefer banks which offer attractive and reliable rewards. But the available rewards systems are not transparent, and could not reach the users at the right time. It enables them to miss the opportunity or be exposed to fake rewards. This can affect the bank\’s credibility, and enable customers to move to another bank.
To overcome this scenario, the banks will utilize the blockchain to implement secure, reliable, transparent, and efficient rewards systems. When the users attain threshold limits, the transparent reward system notifies the users at the right time and it helps to redeem the rewards easily and hassle-free. It can increase customer retention with the banks.
Now, you may understand the real true potential of blockchain that has the ability to revive traditional banking with enhanced security, transparency, and efficiency. It could bring new possible opportunities to banking and helps to provide optimizing banking services. The widespread adoption of blockchain reveals the future banking is going to entirely depend upon cutting-edge blockchain technology.
Moreover, blockchain is an emerging technology that will become a game-changer across different sectors. To improvise your business growth and enable reliable optimized services, blockchain adoption would be necessary. Be willing to embrace blockchain technology in your business, stay forefront among your competitors and reap high fruitful opportunities in your successful Journey!