Blockchain for Banks: Not A Replacement but A Transformation
Blockchain presents a double-edged sword for banks. On one hand, it could potentially save banks billions in cash by dramatically reducing processing costs. Banks are salivating at the opportunity to reduce transaction costs and the amount of paper that they process. Implementing blockchain would make banks increasingly profitable and valuable. Santander, a bank based in Spain, showcase potential savings of blockchain at $20 billion a year.-
We know that the banking sector is a strict regulate in jurisdictions and their conservative attitude always distinguishes the banking industry representatives. However, the recent widespread scope of blockchain technology in the past and present years has added to the fact that the management of many banks and financial organizations now no longer deny the potential of this disruptive technology.
Effects of Blockchain on the Banking Industry
Bigger banks currently are involved in conducting various tests of decentralized asset technology and also implement blockchain in their respective business processes. These banks are increasingly investing in several projects and start-ups responsible for developing blockchain-based solutions.
According to a study conducted by Accenture consulting company specializing in strategic planning, over half of all top managers admit that blockchain is going to play a key role in the success of financial companies-. These analysts have found that the world banking sector will save up to $20 billion by 2022 by imbibing blockchain technology.
Blockchain is capable of solving problems that are continually faced by almost all the banks and other financial organizations. This technology has many interesting characteristics which make it a promising in-demand solution for bankers despite the fact that banking is conservative and restrictive but should plan to leverage on possible characteristics,
Blockchain technology provides a high level of safety in terms of the storage and transmission of valuable data.
Open and transparent network infrastructure.
Decentralization and low cost of operations.
Most of the credit and other financial institutions are unable to carry out their work without a significant number of mediators. The participation of these people makes the services of such institutions much more expensive than what they should be. In this case, the implementation of blockchain comes to the rescue as it will enable the abandonment of these unnecessary mediators, thus providing cheaper services to customers and banks.
Understanding Implementation
The main segments for which banks and other financial institutions will be able to implement blockchain technology are mainly reducing costs, thereby making direct bank-to-bank transfers which would be comparatively fast.
Another way of implementing blockchain in the banking industry is by the creation of a client identification system based on the distributed ledger technology of blockchain. As all credit organizations are bound to perform KYC when processing applications, this becomes highly relevant. Blockchain enables users identified on a single point of time, and this information is stored securely with the access granted to the other banks in the system.
Banking and financial activities always relate to acts of insuring deposits and loans. Even in developed countries, most of the banking activities are criticized often for being both unreliable and vulnerable however, state regulators ensure private bank deposits in traditional currencies. A distributed system based on the ledger technology for loans and deposits is decentralized since a single organization, hence the system can never go bankrupt.
This technology would have a significant effect on the steps for completing and confirming transactions, managing cash and optimizing assets. Also, many other business processes that transact billions of dollars in annual expenses for banks nowadays.
Blockchain technology has made it possible to reduce timeframes for a loan application while approving funds and keeping track of interbank or international transfers. Here, the time needed for processing and confirming personal information is done effectively.
Blockchain has now become an authentic idea for the banking sector with its varied applications and feasible proof of concepts. Therefore, we can say for sure the implementation of blockchain technology in financial institutions, especially in the banking sector would scale up.
Businesses will benefit from a sustained approach for implementing blockchain technology in respective functioning processes. The technology will also provide banks with the required efficiency, speed and security in most of the services that they offer to people. This will have a direct relation to both cost optimization along with enhancements in the quality of services for end-users.
Experts say blockchain will have a transformational impact on the banking sector. “I see banks adopting blockchain technology to improve efficiency, cost-effectiveness, and security throughout the entire spectrum of financial services,” said Param Vir Singh, Carnegie Bosch associate professor of business technologies at the Tepper School of Business at Carnegie Mellon University.
Though there may be several roadblocks present in the way of Blockchain technology currently, we can definitely acknowledge the fact that this technology holds the required potential and disruptive ability to transform the finance and banking sectors reducing the potential costs and labor savings. According to a PwC report, 24% of the financial executives from all around the world are significantly familiar whereby blockchain technology North Americans are even acquainted than those from other regions. Observing the wide-reaching implications of technology, companies are continually researching to find out -ways of applying blockchain in multiple sectors.
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