June 22nd, 2020 | Updated on June 7th, 2021
Showing a tremendous growth Blockchain technology has now entered the realm of banking experts and investors.
This technology at its pace could transform the banking industry and make its services convenient, transparent and secure for the customers.
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The blockchain technology eliminates any middleman to help all the parties involved to agree about the database and its usage in the future.
A ledger that is not in any person’s control helps the users to receive financial benefits like the payments without the presence of a bank.
Blockchain smoothens the use of “smart contracts” which means that manual processes like compliance and claims processing are automated and simplified in usage.
Their Distributed ledger technology (DLT) has the potential to help the companies to improve their governance and data sharing and collaboration standards and excel further.
The banking industry is expanding and the blockchain technology is going to streamline all aspects of banking, some of which are:
Having a decentralized ledger only for payments means that at lower fees payments would be processed and that too quickly.
By offering a secured, cost-effective method of sending payments the need to receive verification from other parties reduces and thus the processing times for a normal transfer are also reduced.
According to 90% of members of European payments council, this technology would transform the industry by 2025.
2. Clearance and Settlement Systems
The presence of distributed ledgers would reduce the operational costs and assist in simplifying real-time instructions between financial institutions.
Alongside the distributed ledger technology helps in finalizing all the transactions directly, and thus keep a track of all of them.
Ripple and R3 are some other technologies that work with the banks to help in making the working of the sector efficient.
ICO’s or Initial coin offerings are trying to introduce a new model that simplifies the access to capital or funds from firms and services dealing in the same.
Initial coin offerings give the entrepreneurs a chance to arrange for funds by selling the tokens and all this without the presence of a traditional investor.
Traditional securities like stocks, bonds, etc. are being tokenized and placed in public blockchains. Doing this makes the technology helpful in creating highly efficient capital markets.
Any kind of middlemen in asset transfers are eliminated and you get the benefit of lower asset exchange fees and access to a wider market.
5. Loans and Credit
When the gatekeeper is removed from the loan and credit industry, blockchain technology helps in increasing the security levels for any financial transactions.
Lending that has blockchain in place makes offering personal loans to customers much more secure and the loans are cheaper and efficient as well.
First, live securities lending was conducted in 2018 between Credit Suisse and ING.
6. Trade Finance
Heavy bills of lending have been replaced which means that the customers would get a transparent, secure and trustworthy service that enhances their experience.
Blockchain and DLT are going to make cross border transactions convenient as they otherwise are quite expensive due to trade and documentation costs. Doing that would also reduce the delivery time and bring a reduction in paper use.
Nearly 80 to 90% of the world trade is dependent on Trade finance and Blockchain influences on the market could impact all those industries which indulge in cross –border trading.
Blockchain technology though has just started off and is still taking baby steps. However, the manner in which it is progressing the banking industry would benefit the most.