Blockchain in banking sector

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Blockchain in banking sector
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• Blockchain technology is taking the internet
  technology and even banking by storm at the
  present time.
• Blockchain is considered as the heartbeat of a
  financial sector by the world economic forum
  which indicates that this technology plays a
  significant role in the financial sector.
• Technological revolution changes the banking
  sector at its best

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• Banking is one of the prominent sectors to
  adopt the blockchain technology.
• Blockchain is a combination of cryptography and
  shared database which allows multiple parties to
  have the transaction simultaneously through a
  constantly updated digital shared ledger.
• It is a kind of technology where the
  transactions happen in a peer to peer system.

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• The transaction over a blockchain eliminates
  the role of a financial institution which
  presently acts as a mediator for transaction.
• It eliminates the chances of fraud even there
  is no third party to authenticate the transaction
  of fraud.
• Money transaction is definitely the prime
  function of a financial institution but it is not
  only the function which a financial institution
  needs to perform.

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• Blockchain implementation would not only make the
  transaction easier but it will make the banking
  faster and safer in different ways.
• There are so many advantages of implementing
  blockchain in banking and it can be advantageous
  for both the banks and its customers.

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• Fraud reduction
• The best thing about blockchain is that it is a
  decentralised database. It is not like the
  centralised banking database, the data in the
  blockchain is saved in a distributed ledger.
• In the traditional banking system, the data is
  saved in a central database which is easy to
  hack.
• Cyber criminals and hackers are well aware of
  evolving the digital technology andve been able
  to bypass these security systems and make a data
  leakage.

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• In contradiction to that, blockchain is
  decentralised and it is less prone to this type
  of fraud.
• Banking industry with blockchain makes a real
  time execution of payments and an absolute
  transparency would enable real time fraud
  analysis along with the prevention of the same.

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• Know your customer (KYC)
• The very important thing in the banking
  industry is know your customer. KYC processes
  requires the banks to validate and verify primary
  documents as a part of the due diligence
  protocol.
• As per the blockchain, once a bank receives a
  new customer and authenticate his identity, the
  bank can save the KYC document in a blockchain.
• The same KYC documents can be used by other
  authorities and the person would not be needed to
  repeat the same process of KYC for a new
  authority.
• The data or the blocks added in a chain can
  never be tempered. So the authenticity of the
  data is an assured thing.

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• Cheaper and secure payments
• Blockchain is a faster, safer and cheaper
  alternative to bank payments. It eliminates the
  need to rely on the intermediary like bank to
  approve the transaction.
• When a third party like a bank comes to a
  picture, it takes a transaction fee from both the
  sender and receiver.
• Previously, one needs to pay a higher charge
  for the transaction and the processing fee and
  also you need to follow certain rules and
  regulations which are set by the financial
  institutions.

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• When a transaction is done through blockchain,
  it makes you get rid of all those issues.
• Blockchain provides peer to peer payments where
  no intermediaries are required hence one need to
  bear a low transaction fee.
• This technology provides cheap, fast and
  borderless payments across the world.

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• Trading platforms
• If a bank starts using a blockchain for
  trading, the whole process will become much
  faster and secured.
• Blockchain offers a new medium to exchange the
  assets without centralized trusts or
  intermediaries which are free from the risk of
  double spending.
• Blockchain will minimise the operational risk
  as all the transactions are transparent and
  immutable. The record of transaction will be
  there permanently and can be used for future
  reference.

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• Monitoring of consortium accounts
• The most important application of blockchain
  technology is to prevent the diversion of funds.
• The funds which are at end use will not be
  tracked by the lender as the borrower makes
  multiple transactions in moving funds from one
  bank to another.
• It helps monitoring the end use of funds of a
  borrower funded by a consortium of banks. It
  leads to the reduction in Non-Performing Assets
  (NPA) as the banks can have an eye on the end use
  of the funds.
• The information which are related to a movement
  of funds is made available to all group members
  and it helps strengthening the monitoring
  mechanism.

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• Fast paced financial transaction
• Most of the third party transactions in the
  banking industry consume lot of time this may
  range from few days to even weeks.
• These transactions are taking place via payment
  gateways that can be better replaced with
  blockchain technology.
• It offers a opportunity for a real time payment
  solutions. The blockchain takes only a few
  seconds to complete the transactions.
• This would eliminate the third party payment
  gateways and results in fast paced financial
  transactions.

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• Loans and credit
• Blockchain can be used for loans and credits in
  two different ways. The very first use of
  a blockchain in the lending industry is that a
  lender can check the credit worthiness of a
  potential borrower through a blockchain.
• Before the lending process, the lender checks
  the credit score, income to debt ratio etc for
  which they need to depend on the credit bureaus
  like trans-union or CIBIL.
• Those credit bureaus save the data in a
  centralized database which is vulnerable to get
  hacker and this would have a direct effect on the
  creditworthiness of an individual.
• In order to resolve this issue, banks can use
  the blockchain to avail the authenticate data
  about a potential borrower.

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The other use of blockchain is that with the help
of a blockchain a loan seeker can avail a loan
through peer to peer lending. In this method of
lending, the lender is just another person
instead of a lending institution who can check
the credit worthiness of the loan seeker through
the blockchain and provide a loan.
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• Final thoughts
• It is undeniable that banking industry is
  appreciating this blockchain technology but
  implementing the same in a day to day function of
  bank is a matter of serious concern.
• Changing the whole banking system is not an
  easy task. All the major functions of banks can
  be performed through blockchain in a more
  convenient and a better way.

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• Blockchain brings more transformation in the
  banking sector since it has the potential to
  disrupt the traditional business models and makes
  it obsolete.
• This way would help reduces the time, effort
  and cost in interbank transactions.
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