How blockchain revolutionises banking

Introduction:

Blockchain technology is attracting ever-growing interest because it is trustworthy and secure, efficient and low-cost, transparent and verifiable and, ultimately, delivers cost savings. Given these benefits, blockchain applications will continue to grow, with particularly promising prospects in the banking and finance industry. In this article, we explore how blockchain can revolutionise the banking industry and change the way individuals and businesses conduct transactions forever.

Payments & Clearance

While facilitating payments is highly profitable for traditional banks, blockchain technology provides a competitive advantage for customers.

Banks would traditionally require a series of intermediaries to verify and enable a single bank transfer as well as reconciliation of bank balances from both parties - a slow process that encounters additional costs from each intermediary and creates a potential point of failure at each step. Blockchain technology offers a way to send payments quickly and securely, eliminating the need for third-party verification and beating the processing times and fees of traditional bank transfers. It has the ability to speed up payment transactions at a lower cost than traditional banks as it avoids the need for intermediaries and reduces the typical costs associated with regulatory compliance, operations, maintenance, credit scoring, data validation and more. For example, the costs of completing an international transfer can be as much as 5-20% of the value of the transaction, whereas the use of blockchain could reduce this fee to as little as 2-3% of the total. This is possible because blockchain acts as a decentralised ledger of transactions that tracks all transactions publicly and transparently in real time, while payments can be settled directly and securely with full traceability to offer greater trustworthiness for its users. Individuals are then able to send and receive digital currency across the world through public blockchains which cuts down on the need for trusted third parties to verify transactions and enables greater access to faster, cheaper and borderless payments. These cost savings can then be passed onto customers in the form of lower bank charges or better interest rates, for instance. In addition to this, blockchain technology allows for faster transfers. For example, a Bitcoin transaction takes an average of 10 minutes to complete verification in comparison to the standard 3-day processing time for international bank transfers.

Banks would traditionally require a series of intermediaries to verify and enable a single bank transfer as well as reconciliation of bank balances from both parties - a slow process that encounters additional costs from each intermediary and creates a potential point of failure at each step. Blockchain technology offers a way to send payments quickly and securely, eliminating the need for third-party verification and beating the processing times and fees of traditional bank transfers. It has the ability to speed up payment transactions at a lower cost than traditional banks as it avoids the need for intermediaries and reduces the typical costs associated with regulatory compliance, operations, maintenance, credit scoring, data validation and more. For example, the costs of completing an international transfer can be as much as 5-20% of the value of the transaction, whereas the use of blockchain could reduce this fee to as little as 2-3% of the total. This is possible because blockchain acts as a decentralised ledger of transactions that tracks all transactions publicly and transparently in real time, while payments can be settled directly and securely with full traceability to offer greater trustworthiness for its users. Individuals are then able to send and receive digital currency across the world through public blockchains which cuts down on the need for trusted third parties to verify transactions and enables greater access to faster, cheaper and borderless payments. These cost savings can then be passed onto customers in the form of lower bank charges or better interest rates, for instance. In addition to this, blockchain technology allows for faster transfers. For example, a Bitcoin transaction takes an average of 10 minutes to complete verification in comparison to the standard 3-day processing time for international bank transfers.

Banks would traditionally require a series of intermediaries to verify and enable a single bank transfer as well as reconciliation of bank balances from both parties - a slow process that encounters additional costs from each intermediary and creates a potential point of failure at each step. Blockchain technology offers a way to send payments quickly and securely, eliminating the need for third-party verification and beating the processing times and fees of traditional bank transfers. It has the ability to speed up payment transactions at a lower cost than traditional banks as it avoids the need for intermediaries and reduces the typical costs associated with regulatory compliance, operations, maintenance, credit scoring, data validation and more. For example, the costs of completing an international transfer can be as much as 5-20% of the value of the transaction, whereas the use of blockchain could reduce this fee to as little as 2-3% of the total. This is possible because blockchain acts as a decentralised ledger of transactions that tracks all transactions publicly and transparently in real time, while payments can be settled directly and securely with full traceability to offer greater trustworthiness for its users. Individuals are then able to send and receive digital currency across the world through public blockchains which cuts down on the need for trusted third parties to verify transactions and enables greater access to faster, cheaper and borderless payments. These cost savings can then be passed onto customers in the form of lower bank charges or better interest rates, for instance. In addition to this, blockchain technology allows for faster transfers. For example, a Bitcoin transaction takes an average of 10 minutes to complete verification in comparison to the standard 3-day processing time for international bank transfers.

Banks would traditionally require a series of intermediaries to verify and enable a single bank transfer as well as reconciliation of bank balances from both parties - a slow process that encounters additional costs from each intermediary and creates a potential point of failure at each step. Blockchain technology offers a way to send payments quickly and securely, eliminating the need for third-party verification and beating the processing times and fees of traditional bank transfers. It has the ability to speed up payment transactions at a lower cost than traditional banks as it avoids the need for intermediaries and reduces the typical costs associated with regulatory compliance, operations, maintenance, credit scoring, data validation and more. For example, the costs of completing an international transfer can be as much as 5-20% of the value of the transaction, whereas the use of blockchain could reduce this fee to as little as 2-3% of the total. This is possible because blockchain acts as a decentralised ledger of transactions that tracks all transactions publicly and transparently in real time, while payments can be settled directly and securely with full traceability to offer greater trustworthiness for its users. Individuals are then able to send and receive digital currency across the world through public blockchains which cuts down on the need for trusted third parties to verify transactions and enables greater access to faster, cheaper and borderless payments. These cost savings can then be passed onto customers in the form of lower bank charges or better interest rates, for instance. In addition to this, blockchain technology allows for faster transfers. For example, a Bitcoin transaction takes an average of 10 minutes to complete verification in comparison to the standard 3-day processing time for international bank transfers.

Banks would traditionally require a series of intermediaries to verify and enable a single bank transfer as well as reconciliation of bank balances from both parties - a slow process that encounters additional costs from each intermediary and creates a potential point of failure at each step. Blockchain technology offers a way to send payments quickly and securely, eliminating the need for third-party verification and beating the processing times and fees of traditional bank transfers. It has the ability to speed up payment transactions at a lower cost than traditional banks as it avoids the need for intermediaries and reduces the typical costs associated with regulatory compliance, operations, maintenance, credit scoring, data validation and more. For example, the costs of completing an international transfer can be as much as 5-20% of the value of the transaction, whereas the use of blockchain could reduce this fee to as little as 2-3% of the total. This is possible because blockchain acts as a decentralised ledger of transactions that tracks all transactions publicly and transparently in real time, while payments can be settled directly and securely with full traceability to offer greater trustworthiness for its users. Individuals are then able to send and receive digital currency across the world through public blockchains which cuts down on the need for trusted third parties to verify transactions and enables greater access to faster, cheaper and borderless payments. These cost savings can then be passed onto customers in the form of lower bank charges or better interest rates, for instance. In addition to this, blockchain technology allows for faster transfers. For example, a Bitcoin transaction takes an average of 10 minutes to complete verification in comparison to the standard 3-day processing time for international bank transfers.

Banks would traditionally require a series of intermediaries to verify and enable a single bank transfer as well as reconciliation of bank balances from both parties - a slow process that encounters additional costs from each intermediary and creates a potential point of failure at each step. Blockchain technology offers a way to send payments quickly and securely, eliminating the need for third-party verification and beating the processing times and fees of traditional bank transfers. It has the ability to speed up payment transactions at a lower cost than traditional banks as it avoids the need for intermediaries and reduces the typical costs associated with regulatory compliance, operations, maintenance, credit scoring, data validation and more. For example, the costs of completing an international transfer can be as much as 5-20% of the value of the transaction, whereas the use of blockchain could reduce this fee to as little as 2-3% of the total. This is possible because blockchain acts as a decentralised ledger of transactions that tracks all transactions publicly and transparently in real time, while payments can be settled directly and securely with full traceability to offer greater trustworthiness for its users. Individuals are then able to send and receive digital currency across the world through public blockchains which cuts down on the need for trusted third parties to verify transactions and enables greater access to faster, cheaper and borderless payments. These cost savings can then be passed onto customers in the form of lower bank charges or better interest rates, for instance. In addition to this, blockchain technology allows for faster transfers. For example, a Bitcoin transaction takes an average of 10 minutes to complete verification in comparison to the standard 3-day processing time for international bank transfers.

Banks would traditionally require a series of intermediaries to verify and enable a single bank transfer as well as reconciliation of bank balances from both parties - a slow process that encounters additional costs from each intermediary and creates a potential point of failure at each step. Blockchain technology offers a way to send payments quickly and securely, eliminating the need for third-party verification and beating the processing times and fees of traditional bank transfers. It has the ability to speed up payment transactions at a lower cost than traditional banks as it avoids the need for intermediaries and reduces the typical costs associated with regulatory compliance, operations, maintenance, credit scoring, data validation and more. For example, the costs of completing an international transfer can be as much as 5-20% of the value of the transaction, whereas the use of blockchain could reduce this fee to as little as 2-3% of the total. This is possible because blockchain acts as a decentralised ledger of transactions that tracks all transactions publicly and transparently in real time, while payments can be settled directly and securely with full traceability to offer greater trustworthiness for its users. Individuals are then able to send and receive digital currency across the world through public blockchains which cuts down on the need for trusted third parties to verify transactions and enables greater access to faster, cheaper and borderless payments. These cost savings can then be passed onto customers in the form of lower bank charges or better interest rates, for instance. In addition to this, blockchain technology allows for faster transfers. For example, a Bitcoin transaction takes an average of 10 minutes to complete verification in comparison to the standard 3-day processing time for international bank transfers.

Banks would traditionally require a series of intermediaries to verify and enable a single bank transfer as well as reconciliation of bank balances from both parties - a slow process that encounters additional costs from each intermediary and creates a potential point of failure at each step. Blockchain technology offers a way to send payments quickly and securely, eliminating the need for third-party verification and beating the processing times and fees of traditional bank transfers. It has the ability to speed up payment transactions at a lower cost than traditional banks as it avoids the need for intermediaries and reduces the typical costs associated with regulatory compliance, operations, maintenance, credit scoring, data validation and more. For example, the costs of completing an international transfer can be as much as 5-20% of the value of the transaction, whereas the use of blockchain could reduce this fee to as little as 2-3% of the total. This is possible because blockchain acts as a decentralised ledger of transactions that tracks all transactions publicly and transparently in real time, while payments can be settled directly and securely with full traceability to offer greater trustworthiness for its users. Individuals are then able to send and receive digital currency across the world through public blockchains which cuts down on the need for trusted third parties to verify transactions and enables greater access to faster, cheaper and borderless payments. These cost savings can then be passed onto customers in the form of lower bank charges or better interest rates, for instance. In addition to this, blockchain technology allows for faster transfers. For example, a Bitcoin transaction takes an average of 10 minutes to complete verification in comparison to the standard 3-day processing time for international bank transfers.

Fundraising

Raising money through venture capital is a labour-intensive, time-consuming process, but some companies are using blockchain to raise capital instead.

Through public blockchains such as Bitcoin and Ethereum, they are raising funds via Initial Coin Offerings (ICOs). This is a new way for companies to finance their developments, where they can connect with a significantly larger pool of investors and gain immediate access to liquidity.

Since ICOs occur online worldwide, companies are not tied down to an arduous process of creating decks, sitting through meetings and enduring long negotiations, and neither are they limited to high-net-worth individuals or other credible investors. On top of this, tokens are priced on a 24-hour global market as opposed to 10 years for venture-backed startups.

ICOs work in one of two ways; either by releasing digital tokens directly to the public in exchange for funding (in a similar way to issuing bonds), or, using smart contracts to protect venture capital and reduce counterparty risk for investors.

This technology enables companies to bypass the conventional fundraising process and access capital in a shorter space of time without a traditional investor or VC firm. Some high-profile ICOs have already raised significant funds, even before proof of a viable product. For example, blockchain company EOS raised over $4 billion in its year-long ICO ending in 2018.

Although there are still some regulatory restrictions in place, banks can seek a new way of growing their customer base and developing sources of income through this market for venture capital.

Fundraising

In order to keep track of ownership when assets are bought and sold, financial markets have traditionally used a combination of different third parties on an outdated system with multiple separate ledgers that is notoriously inefficient, inaccurate, and prone to deception. The involvement of each intermediary incurs a fee and requires manual validation, updates and reconciliation.

However, blockchain technology offers a decentralised database of unique, digital assets that can transform this antiquated process.

There is an opportunity to create efficient, interoperable capital markets while reducing global trade processing costs through the tokenisation of traditional real-world assets on blockchain technology.

Placing these securities (such as stocks, debt and commodities) on public blockchains lowers the fees of asset exchange by removing the need for intermediaries, and also provides access to broader global markets and minimises the instability of the traditional securities market. Additionally, these tokenized securities can work as programmable equity through the use of smart contracts, which can pay out dividends or perform stock buybacks for instance.

Loans & Credit

Traditionally, banks will conduct a risk assessment for any loan applications by looking at factors including your credit score, debt-to-income ratio and home ownership status to then calculate the fees and interest to charge on the loans. This is a slow process that can also potentially create material errors in consumers’ credit scores that negatively impacts their ability to get a loan.

But borrowing money can be achieved more securely with a lower interest rate simply through the use of blockchain technology - without internal errors or misstatements arising. This is because the technology helps to cut costs, reduce complexity of transactions, and improve customer risk assessment.

This alternative way of lending is cheaper, more efficient and more secure, allowing a larger market of consumers to apply for personal loans based on a global credit score using a decentralised registry of historical payments that’s cryptographically secured.

There are a number of ways that blockchain can be used to facilitate loans and credit more conveniently. One way is to allow borrowers to use cryptocurrencies as collateral to secure loans. Another is to incorporate payment histories recorded on blockchain into a credit score, and another is to use smart contracts for loan management.

Trade Finance

Blockchain technology presents the opportunity to streamline and simplify the lengthy and complicated trade finance process, which is currently estimated to facilitate approximately 80-90% of all world trade.

Traditionally, fraud is a significant risk to trade parties due to the lack of confidentiality and oversight in the movement of goods and documentation. These challenges create the possibility of the same shipment being repeatedly mortgaged - something that commodity trade finance banks have come to accept as an unavoidable cost of business because it is such a common occurrence.

This is where blockchain could bring significant savings to importers, exporters and their financiers every year from simply documenting records in a clearer and more effective manner.

The technology can digitally and securely prove country of origin, product, transaction details and any other documentation on a trusted, auditable record without the need for excessive documentation.

The efficiency of financing international trade could be improved by replacing the paper-heavy bills of lading process with the deployment of blockchain systems and distributed ledger technology, particularly through the use of smart contracts to automate certain procedures. Its adoption would result in a system that’s more transparent, secure, and trusted among trade parties worldwide.

These distributed ledgers would give buyers a better understanding of where their goods were produced and when they were shipped, with updates at each step of the trade.

It would also allow exporters and importers access to an accurate and reliable record of shipments moving through their own pipelines; supporting cross-border trade transactions with shorter delivery times, lower costs, greater transparency, and reduced paper use. Even payments between both parties could be made in tokenized form that’s subject to delivery or receipt of goods which eliminates the possibility of missed or repeated shipments.

With some blockchains, companies are able to control what information is then shared with or hidden from the public, enabling them to withhold certain confidential data to avoid sharing sensitive details such as pricing or trade secrets when necessary.

Customer KYC & Fraud Prevention

Onboarding customers, verifying their identity and ensuring their information is recorded and stored in an orderly manner are essential activities of any conventional bank - a process referred to as ‘Know Your Customer’ (KYC).

KYC procedures involve a thorough series of verification steps in order to confirm the identity of the customer. The time it takes for banks to complete all of these can take up to 3 months, a vulnerable time where banks are at risk of customers withdrawing from the process altogether.

While these processes play a key role in fighting against financial crime and money laundering, they come at a cost for banks - not only to manually execute but to also remain compliant throughout.

This is where blockchain technology can help reduce the human effort and cost involved in KYC compliance by automating many of the tasks instead. It has the capability to identify customers, increase data security, and minimise the risk of identity theft and fraud since customer information is securely stored on a decentralised database that prevents unauthorised access and attacks on customer information by seamlessly detecting fraud and cyber attacks. The platform also allows the institutions involved to easily and safely access the information, avoiding duplication of effort in collecting the same data.

It is clear to see that blockchain technology has the capability to transform conventional banking processes, from identity verification, fraud prevention and trade finance to payments, loans and fundraising - all while optimising regulatory compliance and saving costs at the same time.

The technology offers greater security for data assets through enhanced cryptography. With its ability to create a distributed ledger which is cryptographically secure and durable, blockchain may hold promise for providing central banks with a digital alternative to today’s centralised paper-heavy process that requires significant manual effort across multiple parties.

We certainly expect that blockchain will have a monumental impact on the banking industry, and there is no doubt that the digitalisation of these systems will revolutionise the way in which transactions are made going forward.