Rise in Adoption of Blockchain Technology in Banking Sector- Explained
Banking is one of the top industries that have evolved over the years with the increase in the adoption of digital technologies. As the world we live in moves towards digitization, banking customers look forward to the ease and convenience offered by digitized banking services like internet or mobile banking as compared to traditional banking.
Blockchain is one such technology that has the potential to revolutionize the banking sector for the better. Though there are few use cases of blockchain technology in banking, it is likely to grow at a large scale.
In this blog, we will find out everything we need to know about blockchain and its increased adoption in the banking industry.
Issues to Highlight in Current Banking System
Banking institutions and financial firms have played a great role in everybody’s life in terms of multiple economic and financial activities like trading, lending, payment, transaction settlement, etc.
However, this industry has been slow in terms of adopting change, which is why it took a long time to be where we are right now.
With the rise in evolving banking needs by customers, the industry is advancing from time to time. As banks deal with sensitive customer data, the hesitation makes sense in terms of the quick adoption of digital technology trends.
Talking about the current scenario, the banking industry still needs a lot of paperwork, security vulnerabilities, and need time-consuming & expensive processes in place.
That is where; technologies are required to make a change in the banking industry and blockchain is the one that can play a huge role in the regulated financial industry. From small commercial banks to large financial institutions, blockchain can be used to embrace the power of banking.
Top Blockchain Use Cases in Banking Industry
We have seen how blockchain technology has transformed various industry sectors. Now, let’s find out how it can impact banking by going through some of the top blockchain use cases.
- Payment Transfer
One of the most important uses of banking, which we all are aware of, is payment transfer. However, we waste trillions of dollars on added fees and suffer due to slow payments. International payment transfer can charge you a huge amount both by sending and receiving bank.
Through the use of cryptocurrencies like Bitcoin and Ether which are developed on public blockchains, anyone can send & receive money without any additional fees or the need of verifying the transaction.
Since the payment takes place on a decentralized network, payments are faster and cheaper through blockchain as compared to traditional banking.
- Settlement & Reconciliation
During payment transfer with a normal bank, it may take around 3 days to settle the payment and reach the recipient’s account. This is not just a problem for customers but also for the banks.
A simple bank transfer takes place through a complex system of intermediaries before reaching the actual recipient. Blockchain can make it a lot easier!
Working as a decentralized ledger that helps to keep track of transactions transparently & publicly, Blockchain doesn’t rely on custodial services making transactions settled in the public blockchain, which eventually simplifies and hastens the payment transfers.
Talking about the buy and sale of debt, stocks, or commodities, banks are required to keep track of who owns what. To verify this information, they need to connect with multiple parties- exchanges, brokers, clearing houses, etc., which is very time-consuming making the process slow and prone to inaccuracy and fraud.
Instead, we can use Blockchain to build a decentralized database of digital and unique assets, making it easier to transfer the assets through tokens. These tokenized securities help in cutting out the middlemen altogether and reducing the asset exchange fees.
- Faster Loan Processing
In a traditional banking system where a customer needs a loan, banks rely on a credit reporting system that evaluates the risks in case of non-payment. Getting these reports can be hostile to customers but blockchain in banking opens up the scope of peer-to-peer loans.
Blockchain uses a different lending system that offers an effective, cheap, and secure mode of providing loans to customers. By using a decentralized registry of payment history, customers can get their loans processed with ease.
- Customer KYC
Blockchain plays a great role in solving the problems of customer KYC lags in the banking sector. KYC proceedings may take many weeks and even months to complete with various processes like photo verification, address proof, biometrics check, etc.
This not only wastes customers’ time but also the time of banks and even cost banks a lot to perform KYC.
With the evolution of blockchain, the information customers’ stores are completely different enabling banks to access the information related to KYC in just a few seconds. This helps banks to save costs related to personnel reducing overall costs by up to 10%, which is equivalent to $160 million in a year.
Outcomes of Blockchain Adoption in Banking
With the adoption of blockchain technology, banking firms across the globe are likely to witness global annual cost savings of around $12 billion. The research by Accenture says that cost savings in terms of central finance reporting can go up to 70%, business operations cost sayings around 50%, compliance cost savings of 30% to 50%, and about 50% cost savings on centralized operations.
Are you ready to make use of blockchain technology in your banking firm and embrace immense benefits? Many may hesitate in the initial phase but as per the study, more than 90% of bankers plan to add blockchain to their banking processes to ease the task and save costs.
Go ahead with blockchain development to make your business get ready for the future and meet evolving needs of banking customers at lower costs.
We have witnessed that blockchain technology can bring a huge change in the banking sector with benefits like lower transaction costs, better data verification, faster transaction processing, etc.
If you are planning to make your bank embrace the true power of blockchain, connect with our experts and get reliable blockchain app development services that can help your business properly like never before.
As a leading blockchain service provider, Clavax holds pride in focusing on unique business requirements to understand the multi-faceted approach of integrating the new-gen technology in the banking domain.