New technologies are expected to have a substantial impact on the banking industry and banking firms are transitioning from traditional to high-tech systems today.
Blockchain technology is one of the most potential banking breakthroughs, with the potential to decrease fraud, provide speedy and secure transactions and exchanges, and ultimately assist in risk management within the linked global banking system.
As per Allied Market Research, the worth of blockchain in the BFSI industry exceeded $277.1 million in 2018 and it will reach $22.46 billion by 2026, as per Allied Market Research.
Given the fact that blockchain technology is in its early stages, it is generally regarded as a game-changing, revolutionary technology with the possibility to drastically alter the banking landscape in the years ahead.
But what exactly is Blockchain Technology? Is it beneficial for the banking and finance industry?
What is Blockchain Technology?
Blockchain technology is a decentralized, immutable database that allows transactions to be recorded. In general, it’s a distributed ledger, which signifies there’s no network’s central authority, and no single person or entity in charge with the capability to manipulate it. Individual blocks of data, each holding a record of information, are connected together in a sequential manner to form the blockchain. The network’s confidence is based on the fact that these links cannot be modified.
The use of distributed ledger technology or blockchain in banking and financial services has numerous advantages. The industry is well aware of the redundancies of older processes used today, such as legacy systems, data processing, and storage procedures.
Now, as we know what blockchain is let’s look at the value it gives!
Why is Blockchain Technology Best for the Banking and Financial Industry in 2022?
The banking system depends on the transfer and mobility of funds for a substantial portion of its operations. It suggests a keen concern in their safety and privacy, as well as in maintaining a trustworthy and accessible record of their activity. Blockchain technology has the potential to add tremendous value to the business in this domain. Whereas, as users’ activities are recorded on a public ledger, blockchain technology could make the banking industry increasingly effective and efficient. This transparency can reveal inefficiencies, such as fraud, and lead to problem-solving that can help banking institutions decrease risk.
The usage of blockchain in banking has altered the industry in a variety of ways. Payments, facilitation payments, fundraising, securities administration, loans, credit, and trade finance have all been impacted.
Blockchain can deliver speedier payments and lower rates than banks because of its decentralized ledger for payments.
Blockchain has an impact on clearing and settlement systems, as distributed ledgers can lower operational costs and allow for more real-time transactions amongst banking firms.
Top Benefits of Blockchain Technology in Banking!
Let’s have a look at how blockchain could help the financial and banking industries:
Faster Transactions
The blockchain network’s assets are moved via ledger entries, allowing for near-instant transactions. Authentication and bank transfers can take many days; however, contemporary technologies can decrease the period to a few hours or even minutes. As a result, banking firms can use blockchain technology and banking systems to reduce the time it takes to complete transfers. Transfers will become instantaneous and real-time as blockchain technology advances.
Reduces Errors
Errors are less likely to occur blockchain will benefit banks by reducing fraud and misuse of assets while also ensuring accountability. With digitally manufactured transactions, banks will no longer have to worry about significant errors. They won’t have to worry about crucial information being falsified. Banks will be able to perform transactions more precisely and consistently since blockchain makes all transactions easier to inspect and confirm.
More Security
Banks can use shared ledgers to improve the security of transaction data. For one, they’ll be able to finish transactions more rapidly, lowering the chance of someone stealing transaction data or diverting cash. Each transaction has two security keys. A public key is available to all users, but a private key is only shared by the people involved in a particular transaction. Once a transaction’s data has been confirmed, it cannot be changed.
Ensures Easy Verification (KYC)
Verified identification is one of the most important advantages of Blockchain in financial services. Banks have been using blockchain to help them solve a problem plaguing them for years. Banks are in charge of authenticating their customers’ identities. These rules are in effect in practically every country on the planet and are designed to help prevent money laundering activities. Individuals can now be identified using blockchain-enabled IDs by banks and other financial institutions. Customers can be safely identified with the use of blockchain technology. As a result, banks can increase public trust and protect against fraud while also significantly accelerating the verification process.
Better Data Quality
Any information can be stored on a blockchain, and it can indeed be accessed by specific rules and procedures. Smart contracts are used in technology to automatically check and finish a transaction, which enhances data integrity and makes it robust to outside intervention.
Transparency
End-to-end security in transactions and rapid receipt generation would be possible with blockchain banking. This would boost transaction security while also providing a breakdown of transaction expenses. Banks and other financial businesses will be able to keep the same revenues without having to spend funds on auxiliary management and administrative expenditures by minimizing unnecessary costs of documentation, regulation, and so forth. Furthermore, if authorities have access to the blockchain, they may be able to boost regulatory methods for monitoring by central banks, making the entire process much more reliable. The transactions between two entities will be enabled via a blockchain-based distributed ledger platform, while the banking and finance industry will perform what it can do, like securing the transactions between two entities and several others. This will give the banking industry a massive benefit.
As we’ve seen the benefits of Blockchain Technology in banking, now, let’s talk about,
How can Blockchain Technology Disrupt the Banking Industry?
Top use cases of Blockchain Technology for banking and financial institutions are:
P2P Transactions
Peer-to-peer (P2P) transactions are possible using blockchain in banking. It means the removal of intermediaries since smart contracts will be capable of successfully managing transactions. Instant payment settlements will be enabled as the system’s “layers” are eliminated. Cross-border payments can also be made instantly using blockchain payment systems.
Trade Finance
Trade financing has long been a source of frustration for firms, as delayed processes frequently disrupt operations and make liquidity challenging to manage. When communicating information – such as place of origin and product characteristics – cross-border trading entails a lot of variables, and transactions require a lot of paperwork.
Blockchain has the potential to streamline trade finance transactions and make the process easier to manage across borders. It makes it easier for businesses to transact with one another beyond geographical.
Compliance & Audits
A blockchain keeps track of every validated transaction and records all actions done by transaction participants, eliminating the need for regulators to verify the legitimacy of documents. Furthermore, rather than several copies, a blockchain allows authorities to evaluate the documentation of the actual transfer. Immutability on the blockchain also reduces the risk of errors and ensures the integrity of records for financial statements and audits. A blockchain can simplify reporting and accounting and change the way accountants extract and analyze data because all data and insights are stored in one place.
Credit Score
Using blockchain to manage credit scores could offer more transparency to the system. Lenders can examine the immutable track of transactions on the blockchain to determine a person’s creditworthiness. Smart contracts ensure that an applicant’s personally identifiable information is never exploited or disclosed.
Authentication
The blockchain eliminates the need for passwords to safeguard users and bank accounts and computers. Instead, the system integrates blockchain security with biometrics, encrypting individuals’ unique identifiers like iris scans, fingerprints, voice, and other biometrics into blockchain blocks. The encrypted block containing user characteristics is used as an access key to apps and electronics and a key to sign data that the user provides to others.
Clearance & Settlements
Money transfers can be made more accessible and faster-using blockchain distributed ledger technology. In banking, blockchain technology can eliminate the need to reconcile each transaction throughout many financial organizations’ ledgers. Instead, each banking firm has accessibility to the same distributed ledger, which contains all of the transactions that have been recorded. Each transaction is thus made public, transparent, and consistent.
Why choose MATELLIO for Blockchain-Based Services?
We are a blockchain development company providing blockchain-powered distributed platforms to banks and financial institutions of all sizes and business domains. Our blockchain developers address all current and new blockchain development difficulties by doing a complete study of business operations, defining blockchain solution requirements, and estimating the value of a blockchain application in your company or business.
If you want, you can simply contact us to know more about our blockchain development services.
Conclusion
Undoubtedly, among the fascinating technological developments in recent years is the rise of blockchain technology. The benefits and use cases of blockchain highlighted in this blog enable banks and financial organizations to enhance their services while also safeguarding their customers’ identities and security.
You may reduce operating costs, boost security, and stay ahead of the competition in the business by incorporating blockchain and banking software solutions.
If you have a blockchain-based idea, get in touch with us so we can help you make it a reality. We offer the best blockchain development services for various industries and verticals. Also, we’ve got a large pool of professional blockchain developers.
