Strengthens banking dynamics with blockchain technology
By Gleb Kostarev
In recent years, the financial sector has made significant investments in new technologies in response to increasing security breaches, cyber threats, network downtime issues and other relevant operational challenges. One of these investments includes blockchain technology, which has become extremely popular in the banking sector.
In India, banks are collaborating to use blockchain technology to solve several problems
linked to traditional banking. Leading public and private banks in India, including State Bank of India, ICICI Bank, Kotak Mahindra, Axis Bank, and 11 other financial institutions have joined forces to create the Indian Banks Blockchain Infrastructure Company Private Limited (IBBIC), which seeks to digitize transform the banking industry by incorporating blockchain technology. This creates a new regulatory sandbox environment and indicates that the Reserve Bank of India recognizes its value and is taking initiatives to drive blockchain adoption in the country. All of these signal that blockchain technology could very well be a key driver of the next phase of transformation for the banking sector.
Blockchain a key enabler in the banking sector
The adoption of blockchain technology in India is more imminent than ever. Over 50% of companies in India are moving towards blockchain technology. Web 3.0 technology is also expected to increase the value of the digital asset economy from $5 billion in 2021 to $262 billion within 11 years, resulting in a contribution of $1.1 trillion to India’s GDP. Currently, institutional investors have invested billions of dollars in the industry, and the sector now employs thousands of blockchain professionals across various job functions.
Blockchain is a strong driver for the future of the banking industry as it powers new economies and forms of commerce. The World Bank estimates that 1.7 billion adults have neither bank accounts nor any other way to keep their money and assets safe, a phenomenon more commonly observed in developing countries. Blockchain technology has enormous potential to promote financial inclusion. It offers an alternative funding infrastructure that is borderless, secure and accessible to anyone with an internet connection. In India, there has been an increasing trend in mobile phone and internet usage. According to a Deloitte study, India will
has one billion smartphone users by 2026, with rural areas driving sales of Internet-enabled phones. By leveraging blockchain technology, financial services can be offered to the unbanked population through their mobile devices, giving them easy access to banking services. Blockchain also eliminates the need for a central authority and produces an immutable transaction log. This provides better transparency, improved security, lower transfer costs and results in overall cost reductions.
Reconciliation of blockchain technology and the banking systems
Blockchain technology could change the way we access financial services today, with the potential to improve and streamline people’s banking experiences. While some of these improvements are more noticeable, others are more intertwined in users’ banking experience. As the younger generations become more digitized, they may be more attracted to virtual services powered by blockchain. Here are some ways blockchain technology could change how the financial sector works today.
Faster transactions
Currently, banks can take at least 1 to 3 days to verify and settle transactions involving 2 parties, making the process long and time-consuming. Blockchain removes the need for any verification by a centralized intermediary, enabling simple ledger entries for the transfer of money.
Incorporating blockchain-based solutions into banking institutions can help speed up transaction verifications and resolution, even enabling instant transactions. By utilizing blockchain technology, banks can increase the speed of processing and at the same time give their customers access to limitless payments that are cheaper and faster.
Robust Protection Blockchain is more secure than traditional record keeping systems in a number of ways. Before a transaction is registered on the blockchain, it must first be approved. After approval, the transaction will be encrypted and linked to the previous transaction. Coupled with the fact that data is stored across a network of computers rather than on a single server, this makes it incredibly challenging for hackers to destroy the transaction data. This makes blockchain technology an effective solution against fraud and illegal behaviour, and an invaluable tool in sectors where the security of sensitive data is essential, such as financial services, government and healthcare.
Reduce errors and costs Transactions are recorded automatically and permanently using blockchain technology. As a result, many manual processes can eventually be replaced by blockchain, reducing common challenges such as human error and cyber threats. Blockchain technology can significantly reduce the cost of banking services, improve the quality of products and solve problems with speed and accuracy.
Governance of the banking industry with blockchain
The use of blockchain technology in the banking sector can be a game changer that helps pave the way for further technological breakthroughs in the industry. So far, it has proven to be a powerful tool that improves processes, strengthens security and enables a wider range of asset classes to become more accessible to end clients. In India, the rollout of the central bank’s digital currency is underway. This marks a significant step forward in India’s move towards becoming a digital economy and also potentially opens up more opportunities for blockchain adoption in the country.
The author is TVP, Regional Head of Asia, Binance
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