Though its application cases have been few, blockchain technology has gained popularity in recent years.
It is a good moment to use blockchain to enhance current products and services and develop new, more affordable ones because of the change in the U.S. government’s stance towards them.
Blockchain technology is a decentralized ledger that keeps track of transactions, enabling more secure, automated contracts and quicker and less expensive transactions.
Using public and private blockchains can improve transaction speed and security while lowering back-end expenses and labor hours and reducing transaction friction.
Financial institutions are already using blockchain applications in finance. The US has an edge regarding resources for creating blockchain solutions and leading the early adoption of blockchain-based goods.
In this article, let us explore how blockchain can help the banking and financial sectors in the world.
Why Blockchain For The banking And Financial Sector?
Ethereum is a distributed consensus-based architecture that removes the need for data intermediaries and does away with single points of failure.
Moreover, it makes it possible to use secure, tamper-proof application codes against fraud and nefarious third parties. It offers worldwide reach, programmability, trustworthiness, great performance, and privacy.
The use of blockchain technology would enable banks to save huge on cross-border settlement transactions by the end of 2030, resulting in a more than 11% cost reduction.
Ethereum has already demonstrated disruptive economics with cost advantages over current systems that are almost 10 times greater.
Financial organizations concur that during the next 10 years, distributed ledger technology will enable banks and other major financial institutions to save billions of dollars.
Usages Of Blockchains In Banking And Financial Sectors
Given below are the four major usages of blockchain technology that can be put to use in the financial and banking sectors—
1. Money Transfers
Blockchain payments, also known as blockchain payment systems, including using blockchain technology to conduct payments.
The revolutionary technology of blockchain streamlines the transmission of funds and the handling of transactions.
Since its launch in 2009, it has been employed in various industries, although money transfers and transaction reconciliation continue to be its two main uses.
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However, Bitcoin and other cryptocurrencies aren’t the only currencies that may be used to make payments on a blockchain; U.S. dollars, Canadian dollars, and other currencies are also supported.
Blockchain has enabled underbanked communities to access money, enable cross-border transactions, and leverage smart contracts to expedite and secure payment processing.
Blockchain remittance occurs between the sender and receiver and is not dependent on centralized entities like banks, foreign exchange, or payment systems.
2. Smart Contract Automation
Smart contracts are self-executing programmable agreements defined as a protocol and live throughout a distributed, decentralized blockchain network system. They are intended to codify an agreement between two or more participants.
These are condition-based, computer-coded blockchain apps that operate on pre-established terms and conditions that regulate a transaction between two entities.
They eliminate trust difficulties from any contract and offer quicker resolution than manual procedures.
As no intermediates are involved, they are tamper-resistant and provide increased security.
Decentralized autonomous organizations (DAOs) are blockchain communities’ contract versions that follow the guidelines outlined in the contract’s code.
Application Logic Contracts (ALCs) are application-specific codes that operate with other Blockchain applications to form and enforce contracts.
3. Customer Verifications
Customers must be enrolled in the banking sector, their identities must be confirmed, and their information must be accurate. “Know your customer” is the name of this procedure (KYC).
The KYC process, which involves verifying picture IDs, documentation including address proofs, and fingerprints, can take banks up to three months to complete.
Banks spend up to $500M annually on client due diligence and KYC compliance, and delays in the process can lead to some consumers discontinuing their relationship.
Decentralizing data storage and utilizing blockchain-based smart contracts to improve fraud and cyberattack detection are two ways that blockchain technology may assist in cutting down on the human work and expense associated with KYC compliance.
Because of the “if/then” nature of these smart contracts, extra fail-safes may be added during the digital transaction process.
4. Making Secured Transactions
B2B payments are being made better in emerging nations because of blockchain technology, which enables immediate transactions that clear and settle as soon as a payment is made.
Non-Fungible Tokens (NFTs), real estate, safeguarding personal information, voting, logistics, running welfare programs, and keeping tabs on artist royalties are all uses for it.
The security aspect of blockchain, a consensus mechanism that fosters agreement, trust, and security in the decentralized computer network, holds the key to the solution.
Distributed Ledger Technology (DLT) helps maintain an accurate ledger of transaction histories and builds customer confidence that their data will never be used improperly.