Banking and Financial Development services
Banking institutions worldwide have made several moves toward digitalization-driven business models such as mobile banking. When it comes to Blockchain in banking, however, efforts have been largely sidelined. The hesitation shown by banks contrasts with the interest shown by Blockchain technology in other industries. A sign of this is that technology is expected to grow from $4.9 billion in 2021 to more than $67.4 billion by 2026.
However, when viewed through the lens of a bank, the hesitation makes sense. There have been very few large-scale Blockchain implementations in banking and finance.
Top 5 Types of Blockchain Use Cases in Banking
Blockchain is being used in a variety of banking processes. Uses that decentralize the industry.
Payment transfer
Currently, trillions of dollars are made and wasted as a result of added fees and slow payments. For example, if you live in San Francisco and send money to London, both your and the receiving bank will charge a $25 flat fee. Cryptocurrencies such as Ether and Bitcoin are built on public Blockchains that anyone can use to send and receive money in real-time with no transaction fees. Furthermore, because the payment is made on a decentralized network, there is no need to verify the transaction, making Blockchain payments in banking and finance faster and cheaper.
Settlement and clearance systems
A typical bank transfer can take up to three days to settle. This is not only problematic for consumers but also logistically challenging for banks. Today, a simple bank transfer is routed through a complex network of intermediaries from bank to custodial service before reaching the recipient. This is where Blockchain in banking comes into play.
Blockchain app development company functions as a decentralized ledger that records transactions in a transparent and public manner. It means that transactions can be settled in the public Blockchain rather than relying on custodial services. This is one of the primary ways Blockchain applications in banking speed up and simplify transactions.
Securities
Banks will need to keep track of who owns what in order to buy or sell debt, stocks, or commodities. They connect with multiple exchanges, brokers, clearing houses, custodian banks, and so on to obtain this information. Because of the involvement of these parties, as well as the presence of an outdated paper ownership system, the process is slow and prone to inaccuracy and fraud.
Blockchain in banking transforms the system by creating a decentralized database of digital and one-of-a-kind assets. It becomes easier to transfer assets using tokens that represent the assets "off-chain" when using a distributed ledger. The advantages of Blockchain in banking revolve around the creation of tokenized security, which has the potential to eliminate middlemen entirely and reduce costs.
Loans and credits
Banks typically underwrite loans based on a credit reporting system. Blockchain in consumer banking expands the scope of peer-to-peer loans, one of the most investible fintech sectors. Furthermore, when a consumer applies for a loan, banks assess the risk they will face in the event of nonpayment. This decision is based on the credit score, ownership status, and debt-to-income ratio. The data they obtain from credit reports - a centralized system that can be hostile to customers.
Customer KYC
The answer to how Blockchain works is also the answer to the banking industry's customer KYC lags. In some cases, banks can take up to three months to complete all KYC procedures, which include photo verification, address proof checks, and biometrics verification. In addition to the time it takes to verify customers, KYC is also expensive. In retail banking, Blockchain technology facilitates the KYC process.
Wrapping Up
There are ongoing regulatory roadblocks that have created a barrier to entry for blockchain. Despite these obstacles, banks have begun to adopt technology on a small scale. In this article, we will look at the growing role of Blockchain in banking and the technology's global applications.
