Blockchain can transform the banking process in a more secure, reliable, efficient, transparent and flexible way. Banking is the most popular domain of blockchain because of security concerns.

In 2018, Deloitte conducted a Global Blockchain Survey with 1,000 banks that revealed how curious the industry was about Blockchain technology. More than 95% of respondents affirmed they would make some level of investment in blockchain or distributed ledger technology. Three years to be completed soon, the pandemic has rapidly expanded the digital world and so has the statistics of the survey.

Following are some elements through which banks and financial institutions are banking on blockchain technology:

ACCESSIBILITY

The central banks are adopting blockchain innovations to address complex cost and operational challenges. Some central banks and the governments to which they’re affiliated have accelerated the technology into their day-to-day operations.

LOWER TRANSACTION COSTS | Big Banks and Financial Institutions are Banking on Blockchain. With digital currencies, central banks can counter the power and influence that monopolies such as Visa/MasterCard, CHAPS and BACS wield on private networks, lowering transaction costs for users and small businesses.

● SECURE DIGITAL TRANSACTIONS | Big Banks and Financial Institutions are Banking on Blockchain. The attraction for banks goes far deeper than cost savings or networking efficiency. Blockchains can underpin an evolution in RTGS, increasing the security of digital transactions and removing the potential for errors, confusion, double counting and fraud in bookkeeping. Prime examples are – Accounting and audit work.

ADOPTION TO THE DYNAMIC ERA | Big Banks and Financial Institutions are Banking on Blockchain. Blockchain technology also addresses the new realities of the world. While populations, particularly in Asia, were already decreasing their use of physical cash before the Covid-19 pandemic, the health crisis has quickened the volume and value of digital transactions.

INTEGRATION

The traditional method of financial institutions includes multiple paperwork in the process of transactions related to commerce and international trades such as bills of lading, letters of credits, and many more. But with the use of blockchain technology, banks, and financial institutions can continue the entire process without the time-consuming paperwork by integrating all important information in one digital document.

CROSS-BORDER PAYMENTS

Big Banks and Financial Institutions are Banking on Blockchain. The banking industry is focused on transforming the payment system for clients with the use of blockchain technology. Blockchains do not allow any third-party intervention so there is a rapid speed of cost-efficient cross-border payments. Moreover, Banks are always involved in buying and selling stocks and shares, which is a time-consuming process. But the decentralized authority removes all intermediaries or agents to improve the performance as well as reduce the transaction fee.

How does Blockchain Technology overcome challenges in the Banking Sector ?

The banking industry has been facing numerous challenges for a very long time. The safe, secure, transparent, decentralized and cost-effective nature of blockchain has the potential to solve these challenges. Here’s how a blockchain is a one-stop solution to all the existing challenges in banking.

1. Inefficiency in handling records- The rising number of users imposes the need to maintain the complete records of the transactions. In traditional banking, this task

becomes complicated with a large number of users. It ultimately results in consuming more processing time for payments. Therefore, it is crucial to handle and manage the transaction data with ease, speed and security.

Solution: With blockchain in banking services, data handling is ensured with security and transparency.

Immutability: Blockchain is immutable. It implies that data remains unchanged. So, managing the records becomes more comfortable as the stored data is secure, authentic and accurate.

Zero-Knowledge Proof Technology: The zero-knowledge proof technology is a

privacy solution for blockchain networks. It results in authenticating the financial

information without disclosure.

Privacy: Securing data is a significant concern for any banking sector. The public

and private keys secure stakeholders’ financial information. The public key is accessible to all users in the network. The private key is shared only between the stakeholders participating in the transaction.

2. High Payment Cost- When third parties are involved, the cost factor increases with every transaction. Also, more time is required to execute the transactions. The payment costs are high and create a challenging situation for banks to engage their users. The banking sector is generally centralized. So, it invests a lot of money in :

• buying, maintenance and security of central databases
• commission charge of intermediaries
• bookkeeping
• value transfer systems

The recurring cost leads to periodic investments. Therefore, the banking system

becomes expensive without ensuring the prevention of data breaches.

Solution: Most of the expenses get reduced by adopting blockchain in banking

organizations. Implementing smart contracts in banks can reduce the costs of-

• intermediaries
• value transfers
• bookkeeping

3. Consistent Supervision- With the rapid shift into digitization, banks are processing

transactions and payments in digital form. These digital methods increase banking

sectors’ responsibilities to monitor and record the details from time to time. Banks face a

lot of risks in providing services like loans, such as-

• trusting mediators.
• Failure of the counterparty to meet its obligations.
• Credit risk owing to information failure.
• Solution: For blockchain-enabled banking sectors, every stakeholder acts as a node.

Therefore,

• peer-to-peer (P2P) transactions reduce the need for intermediaries.
• Transactions get recorded on the network, thereby minimizing fund management risk.
• Smart contracts execute quick transactions.

These are the major challenges faced by the banks and financial institutions which the Blockchain technology could cover up and avoid in the near future, if adopted in the financial sector.

In conclusion, I personally believe that Blockchain technology is the future of Banks and Financial Institutions. The ever-rising use cases of blockchain are about to bring major transformations in the banking sector. Blockchain in banking can disrupt conventional systems and make the existing systems more obsolete. Blockchain-based solutions are expected to minimize the annual fraud losses up to 9 billion dollars.

I profoundly suggest that the financial system could do much better if it allows the blockchain technology to enter in the system.

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