What are the advantages of blockchain in banking? Blockchain is an emerging technology that has the potential to change the way financial transactions are controlled. Since its creation in 2008, blockchain technology has undergone many changes that have brought about a revolution in many sectors. Banking and finance companies are among those that are rapidly using blockchain technology.
The blockchain acts like a large digital book accessible to the public. It can be controlled by anyone and is shared globally between different computer networks. No central authority requires the inclusion of new transactions in the general ledger. It is also the main force behind popular cryptographic activities: Bitcoins.
Although the banking sector is tightly regulated in all jurisdictions, financial institutions cannot ignore the rise of blockchain technology. The big banks invest their money in the development of blockchain applications and the implementation of this technology in their main business process. Banks and other financial institutions are also looking for startups that do a great job on the blockchain.
Do you know?
According to a report by PwC (PricewaterhouseCoopers), 24% of banking and financial executives from different parts of the world are familiar with blockchain technology. North American-based executives are more familiar with blockchain technology than other counterparts in different regions.
Companies are constantly researching and working to discover ways to develop blockchain applications in various sectors. If we look only at the banking sector, blockchain technology can do a lot to protect millions of transactions. So the advantages of blockchain in banking can improve the performance of the banking sector.
As you know, the banking sector is very vulnerable to fraud and errors, it could benefit from blockchain technology. Global Fintech said 77% of Fintech institutions probably adopt blockchain as part of a production system or process by 2020.
Advantages of blockchain technology in the banking sector:
Reduces transaction time
The world is going digital, and therefore payments are made digitally. Banks usually take 1 to 3 days to transfer money. The development of blockchain applications in the banking sector enables faster transactions.
Using blockchain technology, the confirmation process is completed in a few hours. In the future, blockchain technology will allow real-time transactions. It also eliminates data duplication.
Blockchain technology enables transactions in a more central way that prevents third-party interference. Additionally, there are two security keys with each transaction. The public key allows others to verify the user’s balance and transaction logs, but no one can edit this statement.
Even if the private key is stolen, the thief will not be able to make any transactions in the future. Many banks are testing blockchain technology to reduce fraud and make data more secure.
Improvement of data quality
For banks, the quality of the data matters. The Bank stores a lot of information about users and transactions somewhere, and that information is often manipulated by different parts of the organization and external parties.
Blockchain technology can preserve any type of data and guarantee that the data is accessible according to predefined rules. Blockchain provides us with ‘smart contracts’ that help with automatic contract verification. With the implementation of blockchain technology, transactions will be safer, faster, and better quality.
Banks lean towards blockchain technology and use it to improve their efficiency and customer experience. Blockchain is expected to help the bank reduce infrastructure costs by $ 15 to $ 20 billion by 2022.
With the introduction of blockchain-enabled smart contracts, banks can reduce intermediate costs for contract maintenance. Blockchain technology also reduces bank charges for bank transactions. Gradually, blockchain technology will help banks expand their customer base and help them improve the user experience.
Transfer of money
Money sent to another country is a ready area for change, and banks are already using blockchain for transfers. Consumers and businesses spend hundreds of billions of Euros worldwide each year, and the process is traditionally slow, filled with bureaucracy, and more expensive.
Bitcoin was an “alternative” way to move money, but mainstream banks don’t like the idea of using a volatile Cryptocurrency without rules. However, several major banks are partnering with Ripple or Stellar to allow cross-border payments using blockchain technology.
Fraud mitigated by sovereign identity
Preventing fraud by the use of blockchain technology is among other advantages of blockchain in the banking sector. Blockchain technology is resistant to hacking, DDOS attacks, and other types of fraud. It can also help banks and others identify people quickly and accurately through digital blockchain identification.
With fewer scams, businesses improve and costs decrease. Besides, users have more control over their identity and the data they wish to share.
The transparent and immutable ledger simplifies collaboration, data management, and the conclusion of agreements between different parts of a corporate network.
Blockchain provides industry-leading tools for detailed data protection at each level of the software stack, enabling the selective exchange of data on commercial networks. This significantly improves transparency, trust, and efficiency, while maintaining privacy and confidentiality.
Data privacy is another advantage among the advantages of blockchain in banking sector.
Private and hybrid networks are designed to support hundreds of transactions per second and periodic increase in network activity.
The above-mentioned advantages of blockchain in banking can improve the service quality of banks. The banking sector is gradually building blockchain technology after seeing the Cryptocurrency boom. Blockchain technology has now made it clear that it is not just a rough idea for the banking and financial sector, it is already underway. Besides, blockchain implementation in the banking sector will improve soon.
Blockchain is still relatively new, although banks and other sectors are already innovating with blockchain technology. Currently, technology is likely to be ahead of the rules and it is not always clear what to expect in terms of protection, privacy, potential risks, and dispute resolution.
All these problems can be solved, but it is important to research and understand what problems can arise before using the blockchain for important transactions. Financial institutions recognize that distributed accounting technology will save banks and large financial institutions billions of dollars over the next decade.