“Money won’t create success, the freedom to make it will.”
— Nelson Mandela
Think of an old-fashioned ledger, one of those big leather-bound books that businesses used for recording their transactions and creating a public record that was used for inspection.
Now visualize a web version ledger that is instantly accessible by multiple parties simultaneously secured, accurate, and updated in real-time. This visualization can be foreseen today as ‘blockchain’ driving rapid change to global trade and finance.
As per the Harvard Business study, “Blockchain will do to the financial system what the internet did to media.” Blockchain is revolutionizing the speed and efficiency of transactions even the top global banks including JP Morgan, The Bank of England, and Deutsche Bank are among the primary adopters of the nascent technology. 90% of the European and American banks are already exploring blockchain technology. As per Accenture reports, we could believe that the global banking sector will save up to $ 20 billion by 2022 through the introduction of blockchain technology.
Use cases of Blockchain in Banking:
- Payments: Blockchain has helped banks in the massive acceleration of payment transactions and reducing the processing fees. It provides the highest level of security and cut down on third-party verification times. As cryptocurrencies are built on a public blockchain, they give direct access to the public for transactions between people around the world. Today, trillions of dollars flow around the world via an outdated system of slow payment making users end up paying fees for wire transfer, receiver & sender bank fees, and exchange rate fees. As per Blockchain.com, “Blockchain transactions per day have grown 6x from 50,000 in 2014 to 300,000 as of Feb 2021.” Blockchain provides some incentive to lower fees for facilitating cross-border payment.
2. Clearance and Settlements Systems: Distributed ledger technology could allow transactions to be settled directly and keep track of transactions better than existing protocols. Bitcoin transactions take an average of 10 minutes to settle whereas bank takes a 3-day processing time.
In today’s world, simple cross border banks transfer is not only hectic for customers, but also banks have to go through a complicated system of mediators as described in case-I.
Case – I
As per Ripple reports, the average cost of international payment infrastructure is 20.9 bps, which could be easily reduced by blockchain to 14.1 bps, approx. 33%, using ripple technology as described in case-II.
3. Know Your Customer: KYC is a mandatory task for any bank to onboard its customers and involves a whole lot of time. Even after consuming so much time, traditional KYC is not easily transferrable and could also result in money laundering and fraud also.
With blockchain technology, customer data can be stored in a block and the block can be shared between the banks. KYC Blockchain has the potential to be much safer, exponentially faster, way too easier, and more efficient than the traditional KYC procedure. It also offers better data security by ensuring permission from the relevant party for data access.
Blockchain technology has been recognized after the advent of Bitcoin. Now, researchers find many uses for blockchain in the banking industry from organizing processes, removal of intermediaries for settlements, efficient verification, managing digital identities, and many more.
It also benefits users in terms of control, high-quality data, durability & reliability, transparency, and lower transaction cost.
Blockchain surely will transform the industry to the extent of an unexpected degree. Disruption doesn’t happen overnight, banks will adopt blockchain technology for the bigger reason of saving money.
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About the Author – KASHIV CHAWLA
Kashiv Chawla is a Financial Analyst at Admantium Crypto Advisors, an Investment banking and consulting firm focused on blockchain technologies. We help early-stage entrepreneurs and startups in Building Business Models and Developing Business Ideas take a 360-degree view of how to build a sustainable business using blockchain technologies, translating concepts into clear cut plans. We also help raise external funding to kickstart or grow your business.
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