Blockchain is a decentralized digital ledger that tracks the transactions between the two parties in an efficient manner. It combines technical concepts such as distributed data storage, point-to-point transmission, encryption algorithms, and distributed data storage.
This has attracted leaders from all industries to take a pilot project or implement the technology in their organization. Many industries have implemented too and several are allocating special budget for blockchain implementation. Let’s consider the most common industry-banking here.
Blockchain technology is very much promising in the banking industry these days. Blockchain is believed to transform the industry to a greater extent by:
- Making the process democratic
- Enabling transparency and security
Let’s understand how the characteristic features of blockchain impact the banking industry.
Impact of blockchain features in the banking industry
Transparency: The hash of the records in blockchain are immutable and irreversible. It denies any modification or deletion making the transaction process, smooth, trustworthy, and faster.
Storage of information: Blockchain’s distributed ledger nature allows storage of information in consensus and maintains data consistency across the users or participants.
Processing: Blockchain eliminates manual processing, maintains automated trailing of accounts while reducing time for reconciliations and data validations.
Documentation: Smart contracts facilitate the validation of business processes easily and the reconciliation process straightforward without any hiccups or loss of trust among the participating parties.
Time sensitivity: Blockchain can settle transactions in real-time reducing risk while improving customer experience.
Intermediary: The use of blockchain technology removes the intermediary processes, and thus lowering latency, manpower, and costs involved.
With these special features, let’s see how blockchain is disrupting the banking industry.
Use cases of blockchain technology in banking
Payment processing: Blockchain helps in cross-border payment without involving third-parties. This makes the transaction quicker and safer. Further, digital currencies and all types of currencies are considered here making the process smoother.
Verification: The traditional verification system such as face checking, identity can be replaced by blockchain where people are privileged to benefit from the withdrawal of the repeat registration process. Further participants can access the shared ledger system.
Money lending: The loans, know your customer details, or the Bank Secrecy Act can get linked to a single consumer block saving money and time as against the traditional long and costly process.
Accounting and auditing: Traditional banks depend on paperwork as we all know. With blockchain, banks can enter the transactions into the digital ledger system which is shared too. This helps to pay invoices automatically through smart contracts. The process of auditing is also easier as the information is shared between the authenticated personnel.
Crowdfunding: Online fundraising can be made easy using blockchain through ICOs. ICOs have the ability to sell tokens through the Internet due to decentralization.
Smart contracts: Smart contracts are executed automatically. The transactions are done cryptographically when the conditions are met without intermediaries.
Know your customer (KYC): KYC through blockchain eliminates duplication, reduces administrative work, and thus saves time. The verification of one customer in a bank could be used for verification in another bank when authorized making the process easier.
Though all these processes seem to be easier, they come with certain limitations too.
What are they?
Take a look.
Limitations of blockchain technology
Some of the limitations to implement blockchain are as mentioned below.
- Though blockchain saves cost, the initial capital cost is very much higher.
- The participants and employees must have knowledge of blockchain technology. As this is an emerging field, many are still in the learning phase. If you are a blockchain professional working in the banking industry, it is necessary to upgrade your skills in blockchain by earning industry-related blockchain certification.
- The technology is still at its nascent stage regarding implementation. A large number of participants are necessary to achieve the real benefits.
- There is an urgent need for addressing issues like scalability, storage, and security to implement the technology.
Blockchain professionals or leaders are finding ways to ward off these limitations. Blockchain is going to transform the banking industry at its maximum very soon. The days are not so far.