How Blockchain Technology is transforming the Banking Industry?
Blockchain technology has received a lot of attention over the past few years, not only from cryptocurrency but also from other industries. Blockchain Technology promises a higher level of decentralization, transparency, and security and this is the reason for its adoption in various industries for growth and development.
Blockchain Technology, primarily known as distributed ledger technology (DLT), has emerged as one of the most revolutionary applications and has a huge potential to transform the workings of the banking sector in recent years. The Banking Sector is one of the most popular domains of blockchain because of its transparency and security concerns. With the ability to reduce cost reduction, high data security and Transparency, Blockchain Technology can transform the banking process into a more secure, reliable, efficient, transparent and flexible way.
“As per the Business Research Company’s Report, the market cap of Blockchain in the global banking industry is expected to grow from $1.17 billion in 2021 to $1.89 billion in 2022 at a yearly growth rate (CAGR) of 61.9%. It is expected that the market will reach $12.39 billion in 2026 at a CAGR of 60%. “
Blockchain has a huge potential to transform the way the banking industry currently works and make it more transparent, efficient, secure and cost-effective.
In this article, we explore some of the most common problems faced by the traditional banking industry and the use-case of blockchain technology in banking.
Common Problems Faced by Traditional Banking Industry
The current banking industry has been facing many challenges for a very long time. Let’s look at some of these key problems in the current banking sector:
Difficulty in Handling Records
As the number of users continuously increases, it becomes a headache for the banking industry to maintain a complete record of the transactions. This task becomes more complicated in traditional banking. It ultimately takes more time to process payments. Therefore, it is difficult to handle and manage the transaction records with speed, ease and security.
Time-Consuming Process
The payment process took too much time in traditional banking. There are many users and third parties associated with any transaction, and the payment process became lengthy and took 2 to 3 days or even a week.
High Cost
Banks and financial institutions are primarily responsible for keeping people’s money safe and secure. In order to make this process successful, they require a lot of processes as well as third parties as mediators. These third parties work for banks and financial institutions to make the process simple and successful. But when third parties are involved as a mediator, with every transaction the cost factor increases and it requires more time to execute the transaction. So, the payment costs became high and also created a challenging situation for financial institutions and banks to engage their customers.
Security Issues
One of the most common problems of all the banks and financial institutions around the world is Security Issues. They are commonly facing incidents of cyber-attacks and financial crimes like bank account hacks, data leakage, and fraud, just to name a few. So, in traditional banking, the security concern is still a major problem.
What are the use cases of Blockchain Technology in the Financial Industry?
As we have already seen the challenges faced by the current banking industry. Now let’s see the several ways blockchain technology will change the future of the current banking system:
Fast Payments & Transactions
The current Banking System allows the money transfer facility throughout the world. But the system takes at least 2 to 3 days to verify and transfer the money between two parties. Blockchain Technology allows money transfer by easy ledger entries without requiring a centralized third-party mediator for the verification process. Using Blockchain-based-solutions banks can lower the time needed for verification and settling payments.
Robust Security & Fraud Reduction
Banks and financial institutions around the world are facing incidents of cyber-attacks, bank account hacks, data leakage, fraud, etc. Blockchain Technology has the potential to eliminate these incidents as the blockchain network is maintained by thousands of computers, meaning a single piece of information is stored in all these computers and there is no central point that could attack the network and change data. This feature of Blockchain Technology helps banks abstain from the attacks from hackers and fraudsters, and secure transaction data.
Less Paperwork
In Traditional Banking, there is a lot of paperwork involved in the great majority of financial affairs. Maintaining invoices, bills, documents and contracts is a very responsible and hectic task for financial institutions. In Blockchain Technology the concept of Smart Contracts for making contracts that decide, terminate and update the values of all terms and conditions. Using this type of technology can ease all the banking tasks and make all the transactions hassle-free.
Cost Reduction
In traditional banking, if you are doing a transaction, there are so many middlemen and third parties involved in the process. The interactions between these mediators maximize the expenses of a transaction. Blockchain Technology allows transactions by easy ledger entries so there is no need for third-party mediators during the transaction. This helps lower the interactions between the intermediaries. As a result, it will help to decrease the entire expenses.
Reduced Human Error
In the Banking Industry maintaining all the documents like Invoices, Contracts, Accounts, Record-Keeping and reconciliation is one of the most challenging tasks and the leading cause of cyber-attack. If there is an innocent human error or simple negligence happens, it has escalated into a massive cyber security issue. By using Blockchain Technology, we can phase out many manual processes so thereby it will automatically reduce human errors, improve the overall efficiency and also reduce the impact of cyber threats.
Future of Blockchain Technology in Banking and Financial Services
The future of blockchain technology in banking and Financial Services is going to be very interesting in the upcoming years. Over the last few years, we have seen rapid growth and popularity in Cryptocurrencies and NFTs. Many governments around the globe are thinking about replacing cash with digital currencies. Cryptocurrency, and NFTs are just a few applications of Blockchain Technology.
As well all know Blockchain Technology is not yet adopted by all the banking and Financial Houses but it is slowly getting there. Before adopting blockchain technology, there are so many streamlining processes that financial institutions need to keep in mind. First, Financial Institutions have all the required infrastructure and setup that needs for blockchain and ensure that they follow all the standards for this technology. It is only possible to implement blockchain technology when the global banking industry follows the standard.
Once blockchain becomes a global standard, there are significant advantages, it will lead to more transparent banking systems, faster, reduce human errors, reduced processing costs, and many more. All in all, the future of blockchain in banking and the Financial Industry seems very bright indeed!
Final Notes
Undoubtedly, Blockchain Technology has the potential to reshape the entire Banking Industry and leads to a more transparent, secure, and faster banking system. It helps to create a secured database of customer information and share it through different banking institutions without any hassle. Thus, it reduces time, cost and effort and ensures transparency and security.
The technology has the ability to transform the current banking industry and the industry by offering a secure and transparent environment. While blockchain technology has not been generally adopted by the banking industry, its use cases are going to expand into the future and we, at Hashstudioz Technologies Pvt. Ltd. are excited to be a part of it.
We are one of the leading Blockchain Development Company providing services like Smart Contract Development, blockchain app development, blockchain consulting, fintech application development, & supply chain management. So, if you are also looking for blockchain experts to develop blockchain-based solutions in the banking sector? Get a free consultation call from our blockchain experts, who have the experience and skills to help the banking institutions discover the rising potential of blockchain technology.
