blockchain in banking sector

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‣ Blockchain technology is taking the internet technology and
even banking by storm at the present time.
‣ Blockchain is considered as the heartbeat of a financial
sector by the world economic forum which indicates that this
technology plays a significant role in the financial sector.
‣ Technological revolution changes the banking sector at its
best
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Banking is one of the prominent sectors to adopt
the blockchain technology.
Blockchain is a combination of cryptography and shared
database which allows multiple parties to have the transaction
simultaneously through a constantly updated digital shared
ledger.
It is a kind of technology where the transactions happen in a
peer to peer system.
https://www.scalablockchain.com/

The transaction over a blockchain eliminates the role of a
financial institution which presently acts as a mediator for
transaction.
It eliminates the chances of fraud even there is no third
party to authenticate the transaction of fraud.
Money transaction is definitely the prime function of a
financial institution but it is not only the function which a
financial institution needs to perform.
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Blockchain implementation would not only make the
transaction easier but it will make the banking faster and
safer in different ways.
There are so many advantages of implementing
blockchain in banking and it can be advantageous for both
the banks and its customers.
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Fraud reduction:
‣ The best thing about blockchain is that it is a decentralised database.
It is not like the centralised banking database, the data in the blockchain
is saved in a distributed ledger.
‣ In the traditional banking system, the data is saved in a central
database which is easy to hack.
‣ Cyber criminals and hackers are well aware of evolving the digital
technology and‘ve been able to bypass these security systems and make
a data leakage.
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In contradiction to that, blockchain is decentralised
and it is less prone to this type of fraud.
Banking industry with blockchain makes a real time
execution of payments and an absolute transparency
would enable real time fraud analysis along with the
prevention of the same.
https://www.scalablockchain.com/

Know your customer (KYC):
The very important thing in the banking industry is know your
customer. KYC processes requires the banks to validate and verify primary
documents as a part of the due diligence protocol.
As per the blockchain, once a bank receives a new customer and
authenticate his identity, the bank can save the KYC document in a
blockchain.
The same KYC documents can be used by other authorities and the
person would not be needed to repeat the same process of KYC for a new
authority.
The data or the blocks added in a chain can never be tempered. So the
authenticity of the data is an assured thing.
https://www.scalablockchain.com/

Cheaper and secure payments:
‣ Blockchain is a faster, safer and cheaper alternative to bank
payments. It eliminates the need to rely on the intermediary like
bank to approve the transaction.
‣When a third party like a bank comes to a picture, it takes a
transaction fee from both the sender and receiver.
‣ Previously, one needs to pay a higher charge for the transaction
and the processing fee and also you need to follow certain rules and
regulations which are set by the financial institutions.
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When a transaction is done through blockchain, it makes you get rid of
all those issues.
Blockchain provides peer to peer payments where no intermediaries are
required hence one need to bear a low transaction fee.
This technology provides cheap, fast and borderless payments across the
world.
https://www.scalablockchain.com/

Trading platforms:
If a bank starts using a blockchain for trading, the whole process will
become much faster and secured.
Blockchain offers a new medium to exchange the assets without
centralized trusts or intermediaries which are free from the risk of double
spending.
Blockchain will minimise the operational risk as all the transactions are
transparent and immutable. The record of transaction will be there
permanently and can be used for future reference.
https://www.scalablockchain.com/

Monitoring of consortium accounts:
The most important application of blockchain technology is to
prevent the diversion of funds.
The funds which are at end use will not be tracked by the lender as
the borrower makes multiple transactions in moving funds from one
bank to another.
It helps monitoring the end use of funds of a borrower funded by a
consortium of banks. It leads to the reduction in Non-Performing Assets
(NPA) as the banks can have an eye on the end use of the funds.
The information which are related to a movement of funds is made
available to all group members and it helps strengthening the monitoring
mechanism.
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Fast paced financial transaction:
‣ Most of the third party transactions in the banking industry consume
lot of time; this may range from few days to even weeks.
‣ These transactions are taking place via payment gateways that can be
better replaced with blockchain technology.
‣ It offers a opportunity for a real time payment solutions. The
blockchain takes only a few seconds to complete the transactions.
‣ This would eliminate the third party payment gateways and results in
fast paced financial transactions.
https://www.scalablockchain.com/

Loans and credit:
Blockchain can be used for loans and credits in two different ways. The
very first use of a blockchain in the lending industry is that a lender can
check the credit worthiness of a potential borrower through a blockchain.
Before the lending process, the lender checks the credit score, income
to debt ratio etc for which they need to depend on the credit bureaus like
trans-union or CIBIL.
Those credit bureaus save the data in a centralized database which is
vulnerable to get hacker and this would have a direct effect on the
creditworthiness of an individual.
In order to resolve this issue, banks can use the blockchain to avail the
authenticate data about a potential borrower.
https://www.scalablockchain.com/

The other use of blockchain is that with the help of a blockchain a loan seeker can avail a
loan through peer to peer lending. In this method of lending, the lender is just another
person instead of a lending institution who can check the credit worthiness of the loan
seeker through the blockchain and provide a loan.
https://www.scalablockchain.com/

Final thoughts:
‣ It is undeniable that banking industry is appreciating this
blockchain technology but implementing the same in a day to
day function of bank is a matter of serious concern.
‣ Changing the whole banking system is not an easy task. All
the major functions of banks can be performed through
blockchain in a more convenient and a better way.
https://www.scalablockchain.com/

Blockchain brings more transformation in the banking sector since it has
the potential to disrupt the traditional business models and makes it obsolete.
This way would help reduces the time, effort and cost in interbank
transactions.
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