Today blockchain has become one of the most talked about technologies in the financial services industry. Blockchain technology in banking sector allows banks to easily connect with new business and payment ecosystems. The financial services industry, currently, is advancing in experimenting with the technology. They have undertaken a number of initiatives that are driving its progression for yielding several important benefits in the context of the transfer of assets within complex business networks. Blockchain technology allows all participants in a network to easily share a system of records. This helps in providing consensus, immutability, and provenance around the transfer of assets.
Blockchain can be potentially disruptive because it consists of distributed ledgers that lead to new business models. Let’s take a look at the applications of blockchain in banks.
Benefits of Blockchain Technology in Banking Sector Outweigh the Costs
Fraud Prevention
Blockchain technology is based on the concept of sharing information across different parties and consensus during transactions, and thereby helps in saving on reconciliation cost between banks. This also helps in preventing losses because of documentary frauds.
Forex Volatility
Blockchain technology is used in cross-border payments and can, therefore, help the consumers and banks in taking advantage of the forex marketplace for gaining the best deal transparently from the market players.
Blockchain Technology brings Resilience in the Banking Sector
As blockchain consists of a distributed architecture by design, it allows the network of banks to be operated by all permissioned nodes in the ecosystem. Thus, all important members of the payment ecosystem such as banks and other financial institutions can effectively become the participating nodes in the blockchain network. If an untoward event such as a cyber attack affects the ecosystem, and some nodes of the network are unavailable, the consensus algorithms in blockchain ensure that a transaction can be approved by the remaining nodes in the network.
Reduced Time for Processing for Banks
Most banking processes are linear and hierarchical in nature. These processes are similar to the assembly line of the manufacturing industry such as maker-checker processes. The maker checker-approver process helps the banks in gaining control and puts the emphasis on ownership of decisions. Blockchain technology can help in improving the speed of these processes by reducing decision-making time across the organizations.
Thus, blockchain technology has the potential to address several limitations of the current banking processes by streamlining, simplifying, modernizing, and enhancing the traditional siloed design of banks.
