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Blockchain in banking sector

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Title: Blockchain in banking sector


1
Blockchain in banking sector
2
  • 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

3
  • 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.

4
  • 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.

5
  • 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.

6
  • 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 andve been able
    to bypass these security systems and make a data
    leakage.

7
  • 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.

8
  • 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.

9
  • 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.

10
  • 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.

11
  • 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.

12
  • 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.

13
  • 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.

14
  • 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.

15
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.
16
  • 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.

17
  • 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.
  • Scala blockchain offer a products and solutions
    for a blockchain related projects. The excellent
    support will be provided by the highly skilled
    experts of blockchain. For more blockchain
    related information and queries -gt Click here.
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