Banks are known as one of the financial institutions which invest their funds in the area where they can see more benefits. The simple rule here is they can get more benefits than what they may get by providing funds in any other field. The Blockchain technology is yet in the developing stage, and it has got a bright future as it can be used in many other fields. The whole market for this technology is untapped, and that is why those who invest in this technology can fetch hefty returns which may not be present in any other field in present conditions.
The popularity of cryptocurrencies brought blockchain technology to the mainstream in many ways. Even though the technology is not limited to just cryptocurrencies, it has become an inseparable identity for many people. Now the technology is making inroads into the banking system, and it has the potential to change the banking system in many ways. The banks and financial institutions have identified the potential of blockchain technology, and they are investing heavily in this future technology.
Faster cross border transactions
In the current banking system, cross border payments take a lot of time, and they are also expensive as multiple agencies are involved in verifying the transactions. Apart from that, the regulations may create further hurdles and make it difficult to process transactions round the clock.
On the other hand, blockchain finance can work round the clock without any geographical restrictions. Payment processing becomes an easy task, and it can be done in a matter of a few hours even for cross-border transactions. Apart from that, as multiple agencies are not involved in verifying the transactions, things can be processed at a lesser cost to the customers.
For this reason, many central banks and private banks are working on this technology and trying to get the best out of this technology for the banking system. Some central banks are even considering rolling out digital currencies, and this trend can change the way we see money in the future.
Blockchain can also play an important role in the trade finance sector, and it can change the way commerce and international trade functions in different countries. Many activities related to trade finance run on traditional methods, and it involves a lot of paperwork. This has to be done at various levels, and many agencies have to maintain the records of the transactions. It can consume a lot of time and effort to update the transactions at numerous stages.
However, using the blockchain technology, it can be easily handled with a single digital database. This will integrate all the necessary information, and it can be easily accessed by all the network members.
Digital Identity Verification
Whenever the banking system is dealing with online financial transactions, it has to identify the person and ensure that the authorized person is making the transaction. This involves a lot of steps and the clients have to use their login credentials to access the service. They can use multiple authentication factors to process transactions. In the same way, digital identity verification in other cases involves manual verification, and the clients have to provide the identity to every service provider.
However, by using the blockchain technology, this can be avoided, and the clients can confirm their identity at one place and use the same identity for all the other service providers. In this way, there is no need to repeat the steps of digital verification on a regular basis, and this can save lots of time in the long run. When all the service providers are backed by blockchain, they can avoid the identity verification process at different levels.
The conventional method of getting credit reports can be time-consuming, and it involves a lot of steps. This can delay loan applications and make it difficult for businesses to get quick finance for their emergency needs. However, blockchain can remove various steps involved in the process, and the data is securely stored in the blockchain. The smart contracts will be used to identify and verify the data in an easy and effective manner. This can later be filtered to get the desired results.
This reduces the transactional costs, and it also improves the ways in which credit reports are obtained by financial institutions. It also improves transparency and customers will be able to obtain loans in quick time as the entire data can be accessed by service providers in quick time.
Many banks have realized the potential of this technology, and they are making serious efforts to get the best out of this technology. Shortly, we may get to see digital currencies issued by central banks, and the fiat currency may go out of circulation. Such is the power of blockchain technology that can bring a lot of transparency into the banking system.
Recently, China is taking steps to bring the digital Yuan into the financial market, and this can revolutionize the way we see currency. In the future, the fiat currency may be taken out of the market, and we will all be using digital currencies. This can change the way financial transactions are done, and it will bring more accountability into the system.
Many people try to avoid taxes by using fiat currency as they cannot be traced to the end-user in every case. The government agencies have a tough time in handling such transactions, and they have no other option but to verify all those transactions manually. On the other hand, digital currencies can resolve the problem in quick time as the agencies will have a complete track of the money movement from one account to another in the banking system.
Already many central banks across the world are discouraging the usage of fiat currencies as this involves a lot of maintenance, and it costs a lot of money to print and circulate such currencies. In this regard, they are looking at blockchain technology to bring in some changes to the system.