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Ashutosh Kumar February 25, 2020 0

How Blockchain can transform Banking in 2020?

Investing in powerful technology is a short-term cost to gain long-term efficiency in the banking and financial sector. This certainly applies to the powerful technology, Blockchain, which has the potential to enhance several processes within the financial and banking sector. From making cross-border payments faster to removing the costly middleman it’s already impacting the international as well as domestic banking network. Implementing distributed ledger technology in the banking sector is a great step towards making banks more profitable and valuable.

Possible ways in which Blockchain technology will transform banking are:

  • Streamline Interbank Transactions

  • Fast and affordable Cross-border payments

  • Smart Contract Enforcement

  • Improved Record Storage

  • Immediate settlement

  • Hassle-free KYC(Know Your Customer)

  • Reduces risk of Anti-money laundering & enhances security

  • Improved regulatory reporting

  • Trade Finance

  • Enhanced Data Security

In this article, you will know about the issues in banking sector and how blockchain can transform banking in 2020.

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How Blockchain technology can transform banking in 2020?

Possible ways in which Blockchain technology will transform Banking:

Streamline Interbank Transactions

Over billions and trillions of interbank transactions are taking place each year. All of these transaction requires involved Banks to communicate with each other.

Yet interbank transactions remain complicated. The settlement processes and wire services charge fees for banks and customers. And also banks review the digital clearing systems every month for accounting purpose which is a tiresome process.

With the implementation of Blockchain technology, the interbank fund verification could be done in real-time that would unify banks and reduce fees. That also means quicker wire transfers and at a reduced cost. So here, blockchain is an obvious candidate which will streamline interbank transactions.

Cross-border payments: Faster and Affordable

According to data, consumers send over trillions of dollars in cross-border payments each year. Sending money outside the United States usually costs up to $50 per transaction. And also the settlement process is longer.

Blockchain-powered payment processes can reduce transaction time to mere minutes and that too with enhanced security, transparency, and affordability. The transaction costs are also reduced and take only a few hours to process and complete international transfers.

Smart Contract Enforcement

Blockchain facilitates smart contracts as they facilitate the storage of any kind of digital information. A smart contract acts as an agreement to hold both parties and are self-executed when two or more parties enter the keys. The money involved is only released when the conditions of the agreement are fulfilled. This significantly reduces the risk of a financial agreement.

Improved Record Storage

Adoption of Blockchain in Banks could potentially save billions of cash per year. Banks store a massive amount of data as they have a large number of customers. Paper-based storage methods increase the recordkeeping costs for banks as well as financial institutions. About 60–70 percent of the management costs can be reduced by replacing the paper-based storage with digital storage.

The Blockchain is a digital platform and thus is less expensive to maintain. Apart from reducing the maintenance costs, the digital platform also provides high security and easy accessibility to the stored data as Blockchain stores the records in a decentralized fashion. Also, the risks of losing the data are eliminated by going paperless.

Immediate settlement

Slow payment clearing processes are a major problem in the banking sector. Blockchain platform has the potential to speed up the payment process and can perform immediate settlement and clearing of the transaction.

Hassle-free KYC(Know Your Customer)

Over millions of dollars are being spent by the financial institutions per year to keep up with Know Your Customer(KYC). KYC expenses will continue to increase until automation takes hold.

The blockchain could be the basis for automation in KYC practices. As a distributed ledger technology Blockchain could help in storing and sharing of KYC related data. It can help to automatically update the database of KYC related databases which include the details of where customer money came from, their financial history, their business interests, etc.

The financial industry needs an automatically updating database for Know Your Customer(KYC) related information. Incorporating Blockchain technology in the banking industry would allow accessing the verification details of a client by another organization, thus avoiding the repetition of the KYC process.

Anti-money laundering & enhanced security

Anti-money laundering and fraud detection really need some strengthening in the fintech sector. Many banks have incurred millions in fines for failing to observe the laws against money laundering and terrorism financing.

Adoption of Blochained powered technology in banking and financial institutions would make compliance easier for honest banks. The client information could be shared to ensure no suspicious customer is overlooked. With the help of Blockchain-powered technology, the investigation would become far cheaper and faster as the data stored in the distributed ledger are distributed across hundreds or even thousands of nodes which makes it nearly impossible to manipulate the stored data.

Improved regulatory reporting

Financial firms spend nearly about $45 million on global regulatory reporting processes. Blockchain technology may enable a more convenient way to report.

Blockchain ledgers can easily store verified data, therefore, it allows a convenient way to share files between regulators and compliance departments. Enabling automation can help in replacing the costly reporting process.

Trade Finance

Trade finance is still mostly based on paper, such as a letter of credit which is mostly sent by fax or post. Several intermediaries are also involved in such a letter of credits- banks, financiers, insurers, and export credit agencies and all of them require payments.

Blockchain would help eliminate these intermediaries with reduced record-keeping costs. Simultaneously will also remove paper-based documentation that costs time and money.

Enhanced Data Security

Financial sectors are always under the threat of becoming a victim of cyberattacks. There is a need for enhanced and greater security.

The Blockchain technology would get rid of some of the current crimes committed online today against the financial institutions. The encryption and cryptographically protected keys secure and privatize data.

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