The Reasons Behind Banks' Adoption of Blockchain Technology

The direction of business models driven by digitization, such as mobile banking, has started to change for international banking institutions. However, the efforts to use blockchain in banking have largely been ignored. In contrast to the interest that blockchain technology is generating across other industries, banks are hesitant. The technology is expected to grow from $4.9 billion in 2021 to more than $67.4 billion by 2026, which is evidence of this.

However, the reluctance makes sense when viewed from the standpoint of a bank. In banking and finance, there are very few blockchain use cases that have become widely accepted. Additionally, it has been difficult for blockchain to gain traction because of persistent regulatory barriers. Despite these problems, banks have begun using the technology on a limited basis. In this article, we'll examine some of blockchain technology's practical applications and its expanding role in banking.

While the entirety of this article will be devoted to describing the advantages of blockchain for banking, it is crucial to first understand the shortcomings of the current financial system. Well if you are looking for a blockchain development company in USA to help you grow your business? Then you can always get in touch with Suffescom Solution Inc. as they create fully-customized solutions for all popular blockchain platforms.

What various blockchain applications are there in the financial sector?

The use of blockchain technology is widespread in banking operations. applications that decentralize the sector.

The transfer of money

Increasing fees and slow payments currently result in trillions of dollars being made and lost. For instance, both your bank and the bank that receives the money will charge you a flat fee of $25 if you send money from San Francisco to London.

Anyone can send and receive money instantly and fee-free on open blockchains using cryptocurrencies like Ether and Bitcoin. Additionally, since the transaction occurs on a decentralised network, there is no need to verify it, which speeds up and lowers the cost of payment transfers made possible by blockchain in banking and finance.

Settling and clearing systems

It can take up to three days for a typical bank transfer to be completed. Customers are not the only ones affected; banks also face logistical challenges. Today, a straightforward bank transfer from the bank to the custodial service can bypass a convoluted network of middlemen and go directly to the intended recipient. Blockchain technology in banking can be helpful in this situation.

Blockchain works as a decentralized ledger that records transactions in an open and visible way. It implies that the transactions can be settled in the open blockchain rather than relying on custodial services. One major way that blockchain applications in banking speed up and make transactions simpler is in this area.

Securities banks will need to keep track of who owns what in order to buy or sell debt, stocks, or commodities. They speak with numerous exchanges, brokers, clearing houses, custodian banks, etc. to obtain this information. The process is complicated and vulnerable to fraud because these parties are involved and because an outdated paper ownership system is being used.

By creating a decentralised database of unique and digital assets, blockchain technology in banking transforms the industry. Using tokens that serve as the assets "off-chain," a distributed ledger facilitates the transfer of assets. The key to leveraging blockchain in banking is the production of tokenized securities, which have the potential to completely do away with middlemen and reduce asset exchange costs.

Loans and Credits

Banks frequently base their loan underwriting decisions on a credit reporting system. Peer-to-peer lending, one of the most investor-friendly fintech industries, is made possible by blockchain in consumer banking.

Banks also assess the risk that a customer will be exposed to in the event of non-payment when they apply for a loan. They consider ownership status, credit score, and debt to income ratio when making this choice. They obtain this information from credit reports, a centralised database that may be hostile to users.

Customers can quickly, affordably, and securely obtain personal loans through an alternative lending model that utilises blockchain in banking. The process of applying for loans is simplified for consumers by a decentralised registry of payment history.

Know-Your-Customer principles

The solution to the customer KYC bottlenecks in the banking sector is also the solution to how blockchain technology functions.

The KYC processes, which include biometric and address verification in addition to photo and address verification, can occasionally take up to three months to finish. In addition to the time needed to verify customers, a significant KYC fee must be paid by banks. In retail banking, the KYC procedure is made simpler by blockchain technology.

The blockchain is currently being used in banking to store customer information. As a result, banks now have access to KYC data. an occasion that reduces personnel costs by $160 million annually, or 10%.

These are just a few of the numerous functions that blockchain technology performs in retail banking. As we already mentioned at the beginning of the article, blockchain adoption in the banking industry has been gradual.

Summary

We have now examined the various functions that blockchain technology can perform in the banking industry. Certain market innovations related to lower transaction costs, faster transaction processing, and better data verification are unquestionably driven by technology.

A bank will need to work with a blockchain development service provider in order to be successful in the emerging field of blockchain in banking. a company offering the most sophisticated technology integration strategy for the banking industry.