Use of Blockchain Technology in Banking

With its origins as a framework for cryptocurrencies, blockchain technology has evolved far beyond only enabling bitcoin and ether transactions. Blockchain is a strong and secure technology that is finding its way into nearly every field, from finance to health to government. Blockchain, according to Forbes, has the following advantages:

• Every transaction is recorded and validated on the blockchain.
• Third-party authorisation is not required with blockchain.
• Blockchain is a distributed ledger.

The Blockchain for Banking Industry is the most common application since security is paramount in the financial industry. So we'll speak about how blockchain can transform banking in this blog.

What are the advantages of blockchain technology for banking?

Banking institutions were established to bring people together and facilitate all types of trade and business. A blockchain is a global instrument that can accomplish the same thing. Furthermore, it is safe and transparent.

Blockchain has the potential to have global ramifications. It has the potential to increase trade efficiency by replacing manual and paper-based processes with streamlined and automated ones. Because it is decentralized and cannot be owned by a single entity, a public blockchain can be an excellent collaboration tool. That's why blockchain is more than just the technology underpinning cryptocurrencies like Bitcoin and Ethereum.

Use cases of Blockchain in Banking

Quicker Payment

Customer satisfaction is guaranteed to improve with faster payments and lower processing expenses. BFSI institutions should take advantage of evolving Blockchain Applications for Banking by providing a decentralized payment channel. By providing better security and cheaper payment, banks may be able to provide a higher level of service, develop new products, and eventually compete with innovative fintech firms. Furthermore, banks will be able to decrease the need for third-party verification and speed up the processing of traditional bank transactions by integrating blockchain.

Raising Funds

Nowadays, raising funds through venture capital is a difficult task. The typical situation is as follows: entrepreneurs develop decks, meet with partners multiple times, and engage in lengthy talks about value and equity - all in the hopes of selling their business for cash.

Companies that use blockchain technology can speed up the process by acquiring capital in a variety of methods. Initial Exchange Offerings (IEOs), Equity Token Offerings (ETOs), and Security Token Offerings (STOs) are all examples of this (STOs). Because of its legal protection, STO has been the most preferred alternative.

Trade finance

The trade finance sector is another area where blockchain development is poised to transform. All financial activities relating to international trade and commerce are referred to as trade finance. Did you know that invoices, letters of credit, and bills are still used in many trade finance transactions today? Many order management systems allow you to complete this task online, but it takes a long time.

By eliminating time-consuming manual processes, paperwork, and bureaucracy, blockchain-based trade finance will streamline the trading process.

Transfers between people (P2P)

Customers can send money from their bank accounts or credit cards to another person using P2P transfers. Many P2P transfer programmes are currently available on the market. However, they all have their own set of limitations.With blockchain development, all challenges may be solved. The technology will aid in the decentralization of peer-to-peer transfer applications.

Settlement and Clearance System

Traditional technologies such as SWIFT have the ability to allow banks to settle transactions immediately and keep better track of them than blockchain. Because of the way our financial system is set up, a regular bank transfer takes a few days to settle.

Many banks face logistical challenges when it comes to moving money around the world. Before reaching its destination, a simple bank transfer must transit through a complex chain of middlemen, such as custodial services.

Loans and Credits

To underwrite loans, traditional financial institutions use a credit reporting system. Thanks to blockchain, we may see the future of peer-to-peer lending, as well as faster and more accurate loan processes in general, and even complicated programmed loans that mimic syndicated loan structures or mortgages.

Credit scores, homeownership status, and debt-to-income ratio are used by banks to assess risk while processing loan applications. To acquire all of that information, they'll require your credit report from specialized credit agencies.

Accounting and auditing

Accounting has been a slow-moving field in terms of digitization. One of the reasons for this is the necessity to adhere to stringent regulatory data integrity and validity criteria. As a result, accounting could be another area where blockchain can make a difference.

According to experts, the technology will make compliance easier and streamline traditional double-entry accounting methods. Businesses can enter transactions directly into a joint register rather than keeping different records based on transaction receipts.

Blockchain's Future in Banking

Before becoming a Blockchain Technology in Banking, banking professionals feel that blockchain must meet a number of criteria. To take use of blockchain, banks must first build the infrastructure necessary to run a worldwide network using perfectly matched solutions.

When fully implemented, blockchain is projected to allow banks to process payments more quickly and correctly while also lowering transaction processing costs. Overall, blockchain-enabled banking applications will improve customer experience while also assisting traditional financial institutions in competing with fintech firms.