Blockchain is increasingly
seen as a ground-breaking technology with great potential to
transform industries by forging a path for process efficiencies, cost
optimization, better security, and transparent operations. The
technology is gaining global adoption across diverse industries,
especially the banking industry; it can be gauged by the level of
attention blockchain technology is garnering from start-ups and
Many top U.S. and European banks are capitalizing on the potential of blockchain by partnering with start-ups for delivering crypto friendly mobile banking solution. The focus areas for banks and start-ups include customer onboarding, payments, clearing and settlement, and loan.
The foundational elements of blockchain being leveraged by its adopters consist of the following:
Unlike the conventional process, where one central authority
controls everything within an ecosystem, blockchain distributes
control among everyone on the network, thereby building a shared
Blockchain allows an exchange of transactional value using unique
digital signatures that comprise public keys (the code known only to
the owner) and public keys (the decryption code known to each
network participant). These digital signatures are used to create a
proof of ownership.
uses complex algorithms and a consensus mechanism to ensure
immutability. Transaction data, once agreed upon, cannot be changed
by anyone on the network. This creates a single version of truth for
everyone involved in a transaction, thereby alleviating the risk of
can Blockchain Transform the Banking Industry?
The disruptive blockchain technology holds the ability to revolutionize almost any process – from payments to settlement and record management. This makes the technology alluring to banks, financial institutions, and start-ups, thereby solidifying their decisions to roll out crypto friendly mobile banking solution.
are the profound, positive changes that blockchain can bring to the
finance is one of the ideal areas for blockchain transformation.
Global leaders are harnessing blockchain technology to offer better
banking solutions to their customers. Deutsche Bank joined JPMorgan’s
blockchain-led crypto payments network.
trade finance ecosystem comprising blockchain-driven solutions, such
as a letter of credit, bill of lading, and multi-signature
transactions can enable the following:
issue bill of lading as a digital asset on the blockchain
issue letter of credit on the blockchain
contracts between parties involved in trade
fund release while ensuring speed and transparency
current settlement process requires two to three days for payments.
Blockchain can accelerate the settlement process, driving a
transformative change in the capital market. Key benefits for banks
and financial institutions shifting to blockchain-based settlement
include the following:
operational cost as a blockchain-driven decentralized trade
settlement process eliminates the need for an intermediary. While
the existing trades are settled in a T+2 time-frame, blockchain
could lead to an instant settlement, with a T+0 time-frame.
decentralized clearing process that eliminates the risk involved in
trading of over-the-counter (OTC) products, such as swaps.
global trade by maintaining a decentralized ledger to keep
transparent record of transactions on a distributed ledger, which
can enable capital markets to witness higher trust levels.
decentralized document verification process can enable companies to
access the latest documents and validate their authenticity. This
type of solution can incentivize companies in the following ways:
sharing of verified documents with companies requesting for the same
time for user onboarding
to the latest version of documents
multi-party verification process
Start-ups and financial institutions offering crypto friendly mobile banking solution are already harnessing a decentralized identity management process to eliminate inefficiencies involved in the existing centralized process to store customer information. With data stored in blocks and tamper-proof hash format, banks and financial institutions can augment the security of data stored and exchanged between third-party requestors.
Future of Blockchain-based Banking
and distributed ledgers are poised to transform the banking industry.
They can empower banks to not only alleviate payment processing
costs, but also roll out ingenious products and services that can
create new revenue streams.
To make this a reality, banks and financial institutions need to work together with non-banks and technical partners to build the backbone that can underpin a global blockchain-led digital asset bank solution.