How is blockchain transforming the banking industry?

Blockchain is one of the most innovative technologies in recent times, which is an open, immutable ledger that can record all transactions between two parties. It can process transactions much faster and easier than traditional systems. Although blockchain technology is still emerging to play a significant role across industries. However, the one industry it could potentially transform in a big way is the banking sector.

Why should blockchain be used in the banking industry?

• Today’s banking system relies heavily on documentation and paperwork which can result in errors, fraud and scalability issues.
• Cross-border transactions are always a problem to resolve due to their time-consuming process.
• The process through traditional banking requires more manual effort.

Applications of blockchain in the banking sector

By embracing blockchain, banks can offer their services and bring more innovative products to the market. Some of the prominent uses of blockchain include:

Processing faster payments:

One of the primary use cases of blockchain in banking is the processing of payments and remittances.
Blockchain can provide an infrastructure to make transactions secure. Since no third-party verification is required, it can also simplify the process of bank transfers. As a result, it can lower processing fees and improve customer satisfaction.

Buying and selling assets is faster:

In general, buying and selling assets takes a lot of time. The process involves many third parties such as the stock exchange, custodian banks and personal brokers. With blockchain, the process of buying and selling has become much faster as it eliminates the third party and reduces redundancy.

Simplifies peer-to-peer lending:

Technology can solve most of the lending challenges we face with the transitional banking systems. Unlike banks that use credit scores to lend, blockchain takes a peer-to-peer approach. Here, lender and borrower can enter into an agreement without an intermediary using smart contracts. This can reduce the processing of loans by saving time.

Make cross-border payments easy:

Most traditional banks face challenges while processing international payments. The process goes through a complex chain of intermediaries before the money reaches its destination. But with the help of blockchain, banks can settle payments more transparently and efficiently.

Credit reporting becomes easy:

With the traditional banking system, it takes a lot of time to assess the credit reports in order to issue a loan. The level of centralization not only increases the risk of credit score errors, but also the potential for information leaks. But blockchain offers a way to ensure a fast process accurately and securely.

Increased transparency:

Since traditional banking involves a lot of double-entry bookkeeping, there is an opportunity for blockchain to revolutionize the field. Blockchain can maintain an immutable record of all transactions that all market participants can access in real time. It also greatly reduces risks such as fraud and theft.

KYC does not take much time now

These days, when most people choose online banking, verification and identification are essential. Know your customer is a process where banks bring in new customers by verifying their identity. This can be a time-consuming task as the banks have to check through the information the customer has provided. Through blockchain, banks can allow customers to use digital fingerprints as unique identifiers to be stored on all the distributed ledgers. It can allow customers to avoid going through the entire KYC process as the data is stored and any bank can use it to process new applicants. Also these days the banks and financial institutions are more concerned about the fixed costs of complying with AML and KYC procedures. With blockchain technology, banking institutions and consumers can get away with these processes quickly.

Blockchain: A Revolution for Banking

Although there are strict regulations surrounding the banking industry, financial institutions and the government have begun to realize and adopt blockchain technology. Some giant banks have already started trying their hand at blockchain technology. The use of this technology can be revolutionary for various areas of banking.

By adopting blockchain technology, the verification can be processed more easily. It can solve most of the problems in the traditional financial system and thus increase transparency, accessibility and reliability. In addition, it can also dramatically improve the customer journey and facilitate a more secure way of transacting.

Guest Contributor Alankar Saxena is the CTO and co-founder of Mudrex, a global crypto investment platform. Any opinions expressed in this article are strictly those of the author.