Blockchain Applications: Innovation In Banking Industry
Today, when human life is moving online and digital, blockchain is taking a leading position in the development of a financially literate society. Banks, which are the main financial institutions in the world, invest heavily in blockchain applications for banks.
Well, if you are ready to dive into the world of blockchain and find out what role it will play in the banking business, as well as see specific cases of its application, I dare not hold you back!
Scroll on and you’ll find out:
- Blockchain technology in banking industry;
- Benefits of implementing blockchain technology in banking;
- Challenges and risks associated with blockchain implementation in banking;
- Use cases of blockchain technology in banking industry;
- Case studies of successful blockchain implementations in banking;
- Future outlook and potential for blockchain in banking industry.
Blockchain technology in banking industry
In the future, blockchain will be able to facilitate many banking procedures and make various payment chains more reliable.
Blockchain technology has the potential to transform the traditional banking business and make it more open, productive and reliable. Such characteristics as stability and independence make it possible to apply this technology in banking operations.
Banking institutions around the world have already taken a number of steps towards digitalization-oriented business models, such as mobile banking. In general, the application of blockchain in banking can be observed in various processes.
Blockchain technology in banking fundamentally changes the system by creating a decentralized database of digital and individual assets.
It is thanks to blockchain technology that banks will be able to control all global transactions. Banks will be able to do without the involvement of intermediaries and regulatory organizations for the prompt processing and settlement of transactions. Blockchain technology allows to reduce the cost of asset exchange due to the absence of intermediaries and the possibility of transferring rights to assets.
Benefits of implementing blockchain technology in banking
Blockchain is giving many institutions an incentive to think about its benefits, as it will greatly facilitate the process of making payments and online transactions.
Its main feature and undoubted advantage is that this data register is not stored in any specific place but is distributed among several thousand computers around the world.
The second thing that can be said about the benefits of modern technology is that it allows for continuous and efficient supply chain financing based on smart contracts.
Blockchain also makes it possible to control the entire logistics supply chain from the manufacturer to the end consumer.
So, let’s summarize the advantages of this technology in the table.
|Decentralization||The transaction is carried out through the entire network, which is the guarantor of the action.|
|Smart contract||The amount reserved in advance for a particular product/service, is automatically deferred and written off at the time of its delivery.|
|Storage and protection systems protection systems||A block system that only allows you to add information.|
|Velocity||Nine transactions per second.|
|Integration||The question of interoperability technology in different countries and confirmation of legal capacity of counterparties.|
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Challenges and risks associated with blockchain implementation in banking
The following key challenges and risks of blockchain implementation in the banking sector can be identified:
|Budget (Financial resources)||For most banks, budget is a major concern when considering blockchain adoption. Since this technology is not well researched, you do not know exactly how much it will cost to implement it.|
|Compliance and regulation||The lack of clarity and guidance makes blockchain integration difficult to navigate.|
|Lack of skills||Blockchain is still a very young technology, and the skills required to implement and use it are inadequate. The high cost and difficulty of finding talent in this area only increases companies’ concerns about the introduction of blockchain and its combination with existing systems.|
|Concerns about security and privacy||There are security risks, such as hacking of private keys, self-serving mining, and duplication of spending, that are new to financial institutions and seem difficult to understand. To counteract security and privacy risks, it is necessary for banks to develop a detailed vision of blockchain technology and implement appropriate security practices. Over time, they will gain public support by clearly demonstrating the benefits that properly implemented blockchain applications can bring to privacy and security.|
|Lack of understanding within the bank||Banking teams lack blockchain specialists who can develop blockchain projects and transfer blockchain knowledge and understanding within the bank. Blockchain specialists are increasing in number globally, but it can be difficult to decide what skills your bank needs.
Banks should try to upskill their employees, namely to train their employees to work with blockchain.
|Suboptimal technological infrastructure||Traditional banking systems are not set up for the technological infrastructure that blockchain will require – not only to provide blockchain services, but also in terms of scalability.|
|Blockchain interoperability||Blockchain interoperability makes it possible to exchange, view, and provide data to information between multiple blockchain networks without an intermediary or central authority. Lack of interoperability can make mass adoption of blockchain almost impossible.|
Use cases of blockchain technology in banking industry
Blockchain can optimize banking and lending services, minimize partner risks, and speed up the time it takes to issue and settle payments.
Money transfers, payment and securities processing, loans and credits, and customer identification (KYC) are prime examples of blockchain technology applications. Blockchain technology enables lightning-fast transactions in real time.
Blockchain technology is growing rapidly, and large banking institutions are showing interest in this technology.
How is blockchain technology typically used?
Different types of information are stored in a blockchain, but the most common function so far has been a transaction ledger.
Case studies of successful blockchain implementations in banking
An illustrative example of the application of this concept is the launch of a unified blockchain platform for cross-border money transfers – Blockchain World Wire (hereinafter referred to as BWW) by IBM.
Its authors promise to carry out transactions around the world instantly, reliably, and much cheaper. Currently, 44 banks with offices in 72 countries are already connected to the system. The essence of BWW is the ability to “send” analogs of world currencies in the form of blockchain tokens tied to exchange rates.
The system is identical to JPMorgan’s solution: at the request of one of the parties, BWW generates a portion of tokens for a certain amount, transfers them, redeems them, and credits the fiat money to the account of the other party, after which it “destroys” the used tokens.
Perhaps the most famous global example related to the use of blockchain technology and the issuance of securities is the issuance of The World Bank bonds for USD 73 million by the largest Australian conglomerate, Commonwealth Bank of Australia.
Blockchain technology ensures trust in the issuer of securities, which cannot change the terms of the bond issue, and is also a tool to ensure the safe circulation of electronic bonds in the secondary market.
Future outlook and potential for blockchain in banking industry
Blockchain has the potential to be a revolutionary technology that banks can use to improve services and customer experience. Blockchain can also help save money on operational costs and reduce risks by making changes to records in different systems.
According to Gartner’s forecasts, by 2026, the business value added by blockchain will grow to more than $360 billion. Subsequently, by 2030, it will increase to more than $3.1 trillion. Taking into account current and future trends, blockchain is projected to revolutionize the industry in the coming decades.
In addition, one of the main trends of blockchain development in 2023 is the increase in the number of corporate operations based on the blockchain. Due to the decentralized structure of the blockchain, security, confidentiality, and resistance to cyberattacks are enhanced, so more and more businesses will use this technology for their own purposes.
Is blockchain the future of banking and will it be able to displace classic banks? Who knows – anything can happen in the future. In any case, the growing trend of using blockchain technologies in finance proves that these technologies can at least turn the financial industry upside down and start something radically new.
Blockchain technology is a fast-growing field that offers many opportunities for investment and partnership.
If you want your financial institution to be innovative and on a par with the most developed companies in the world, then you have definitely come to the right place! OmiSoft specialists will be happy to help you. Just contact us.
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