Nowadays, blockchain has extended its wings to numerous domains. It has become a true sign of security, traceability, and reliability. Today, in this modern world, the banking industry is sharp-set to enhance security-based solutions. However, we are already witnessing it with blockchain technology.
Blockchain: This disruptive technology has eliminated the threat and risk of fraud in the areas of finance and banking. Furthermore, blockchain is addressing the pain points related to operations and administration of the banking sector. So let’s take a look at the top banking applications that are backed by blockchain technology.
Fraud has become a major challenge in the banking industry. Traditionally, bank ledgers were all created on a centralized database. This centralized database can be easily hacked and susceptible to hackers. Due to the centralized data storage, hackers and cyber-criminals are well aware of hacking the security systems to commit data breaches and fraud.
In this case, blockchain is by-default a decentralized platform with less prone to fraud. It has the potential to do real-time payment execution at the same time detecting fraud and crime attacks. At every step of a transaction, blockchain does the real-time analysis and verification of data. It maintains the record of transactions’ history. Thus, the blockchain prevents the data from malicious attempts.
The Know Your Customer (KYC) requests take quite a bit of time to do the verification process. Typically takes 30 to 50 days to conduct a satisfactory level verification process. Also, currently, the KYC processes involve a lot of duplication of effort between banks and other third-party institutions. Thus, operational costs are high with large penalties for not following the KYC guidelines properly.
Reports say that an average bank spends £40 million a year on KYC Compliance. However, few banks spend up to £300 million on KYC Compliance, Anti Money Laundering (AML) checks, and Customer Due Diligence (CDD).
Due to the long KYC procedures with on-going regulatory changes and international standards, banks are facing difficulties in onboarding new customers. Therefore marking a negative experience for customers.
Currently, banks adopted blockchain technology to store KYC documents. When a bank has KYC’d a new customer, they can just add the KYC documents and statement summary details on the blockchain network. Blockchain has made the KYC a one-time verification process so that the other organizations need not independently check and verify the customer ID again. Once the customer documents are added to the blockchain network, other banks, and accredited organizations (such as insurers, car rental companies, loan providers, etc.) can utilize these documents and ignore the whole KYC process again. This will save the administrative burdens and costs, minimizing the risk of duplication or errors.
The decentralized blockchain platform stands as an advantage to customers as well. The blockchain-based KYC verification exemplifies the disclosure of the customer KYC documents to each individual organization or institution. The ID documents are only open and are disclosed to the customer’s respective bank and not any other organizations. Thus, integrating blockchain to the KYC documents procedure helps securely store the data by strictly restricting access to everyone. Therefore, banks may save up to millions of dollars annually.
Blockchain technology supports a new medium of exchanging assets without any middlemen involved in it. This could save the costs of double-spending and enhance transparency and trust. Every time when a digital token exchange takes place, blockchain technology stores the ownership information as a history of that digital token.
When a final recipient buys a digital token, he/she will be able to know the chain of digital tokens starting from the creation point to the selling point and verify the history of records.
Here’s a non-banking example. Everledger, a permanent ledger for diamond certification uses Bitcoin as a mark to prevent diamond fraud, provide transparency to all the parties, and mark authenticity.
Similarly, integrating blockchain technology into the trading platforms could help secure the transfer of value, save operational costs, and maintain the privacy of data among counterparties during the trade transaction
Blockchain unlocks the challenges and opportunities in the payments space. It has the potential to deal with payment issues and transform the way we do banking. Blockchain could be a great discovery to help bank customers, financial institutions to speed up operational efficiencies and save costs during the transactions.
Today, there’s quite a lot of urgency in the payment system and banks are under great pressure to deal with all of it. The payment transaction needs to be fast, safe, and secure to avoid a financial crash. Thus, the great financial institutions in the market have adopted blockchain technology to solve these problems. This resulted in speeding up money transfers, operating 24 hours a day, and providing a satisfactory customer experience at any time.
Not just among the payments, but blockchain technology is being incorporated into the cross-border transactions to process the international payments in a fraction of seconds. Hence, blockchain made it easy, simple, and faster. It has made the payments happen in real-time with great transparency. Firms are building cross-border platforms that are instant, nearly free for global financial transactions, and secures payments. Now that the exchange of funds is scalable and less expensive, users will also be able to track the transactions with a real-time fraud analysis feature.
Therefore, it is clear that blockchain technology will definitely streamline the banking processes, reduces costs, secures transactions, and undoubtedly makes tremendous improvements in the banking sector.