The banking sector plays a vital role in the global economy. Billions of transactions are executed every day. Banks face many slow operational processes, scams, and cyberattacks frequently. That is where blockchain technology can deliver a secure and transparent solution. In this article, we provide some best Benefits of Blockchain Technology in Banking.
The usage of blockchain technology in banking and financial institution globally is projected to reach from $0.28 billion in 2018 to $22.5 billion by 2026.
Blockchain features have considerable benefits for the banking industry. This blog will discuss those benefits.
So, let’s get started.
Why Is There a Need for Blockchain Technology in Banking Industry?
The banking industry has been around for hundreds of years, functioning as a facilitator for numerous financial activities that incorporate lending, borrowing, money transfers, clearance, underwriting, and much more.
But this long span has led to stagnation, with the industry unable to adapt to the fast transferring realities of the digital era.
Banking processes are too lengthy to steer their way ahead efficiently.
For instance, numerous banking operations need lots of paperwork or documentation, which increases the time and costs for everyone. Moreover, the stagnated process builds security breaches and loopholes. There is a huge need for a secure and advanced technology to eliminate the vulnerabilities, which is where Blockchain technology comes into play.
Top 9 Essential Benefits of Blockchain Technology in Banking
1. Powerful Security
Implementation of blockchain technology in banking enables enterprises to cover a wide array of security problems. The technology can be used at various levels, from securing sensitive data to improving user authentication. Let us see how blockchain technology will enhance the digital banking structure.
- Authentication of User:
Blockchain technology removes old ways of user authentications and includes robust data security with users’ unique identifiers like iris scans, voice, fingerprints, etc.
- Protection of Data:
Blockchain is decentralized, so it is challenging for online attackers to hack it, as they have to work with a whole blockchain architecture instead of a central node. That is why multiple banking organizations are taking the assistance of a Blockchain development company to build secured banking solutions.
- Secure Interaction:
Blockchain technology can be utilized for securing internal interactions, which will prevent data leakages.
2. Smart Contract
Smart contracts are self-operating that is conducted once the conditions are fulfilled. With the help of smart contracts, banks can easily streamline their process, such as
- Automating Insurance Claims
- Decreasing Operating Costs
- Automating Money Transfer
- Conduct Easy Auditing
Implementation of smart contracts in banking will surely decrease the involvement of third parties and improve trust among parties.
3. Faster Transactions
Currently, many banking functionalities and transactions are relatively slow and use lots of time to approve by the management. Furthermore, certain banking operations are still conducted manually. Blockchain-based banking apps resolve this problem by providing instant authentication and verification by facilitating other banking procedures, for example, eliminating paperwork, fast cross-border transactions, and much more.
4. Transparent Nature
The transparent nature of blockchain improves the transactions’ transparency, making it effortless to detect and deter forgery. Banks can seamlessly track the history of every transaction and verify it for its legitimacy. Therefore, blockchain technology does not allow scammers to do money laundering or other financial frauds.
5. Enhanced KYC
Know Your Customer(KYC) is a process of verifying the identity of a new customer before providing the banking services. It is conducted by banks that take more than a week to get approvals from other financial institutions.
The usage of blockchain in banking organizations is an adequate resolution that makes the verification process faster, reduces mistakes and duplications, and averts numerous interactions. After verifying the data, it can be safely stored and flawlessly shared with other banks.
6. Decentralization
One of the essential features of blockchain for banks is decentralization. Instead of depending on a central authority, buyers and sellers can interact with one another without any intermediaries. It results in reduced operating expenses and improves confidence between transactors; moreover, individuals or independent entity does not have single control in the market.
For instance, cross-border payments in decentralized digital currency are more affordable if once compared to fiat payments as they remove bank fees and do not adhere to any bank policies.
7. Efficient Clearance and Settlement System
Blockchain technology is based on distributed ledger concept that can streamline and quickens bank transfers. Generally, an international transfer or payment can take up to 3 to 5 days. It occurs because the transfer process has to go through a chain of intermediaries incorporating correspondent banks and financial institutions.
The banks that conduct the sending and receiving transfers process, in their favor, have to abide by the global financial system that incorporates multiple traders, asset management organizations, lending institutions, etc.
Blockchain technology in banks can eliminate the need to reconcile transactions across numerous financial organizations’ ledgers. Therefore, every financial organization has access to a similar distributed ledger that, in turn, delivers transparency to all the banks involved.
8. Direct Payments and Lending
Blockchain technology in financial services provides direct peer-to-peer payment without the association of any banks or other intermediaries. This way, the transaction process gets quicker and more reasonable. Furthermore, blockchain ensures that every transaction is traced with complete transparency.
9. Improved Global Trading Procedure
Implementing blockchain technology into the banking system can immensely enhance and optimize the global trading procedure and supply chain module. With the assistance of smart contracts, the enterprises engaged in the foreign trade system can easily handle financial liabilities. They can efficiently verify the quality of goods and make the actual payments in less time and effort.
Final Thoughts
This blog has emphasized a few examples of blockchain transforming the banking industry. The entire banking process gets secure, fast, and straightforward. With blockchain technology, multiple banks have enhanced their operations and become more competitive. So, if you are a banking institution looking to boost your financial operations, you can consult your business needs with a dedicated mobile banking app development to validate your idea. so here are some best Benefits of Blockchain Technology in Banking.
