5 Ways Banks are Using Blockchain

Blockchain technology, the technology which underpins cryptocurrencies, is gaining popularity with frequent announcements in virtually every sector. It is amazing how various businesses are expressing their interest in this state-of-the-art technology in recent years after initial skepticism. This article will focus on the transformation of the bank industry because of the usage of blockchain technology. 

5 Ways Banks Are Using Blockchain.

1. Trade finance –
In a case where oil shipment needs to be done from one part of the world to the other, it could take weeks to deal with the necessary paperwork [which is done on fax machines], letters of credit, and physical stamps on a piece of paper. These processes are just too long for this [technological] age we find ourselves. Blockchain can offer a lot for trade finance in a time where numerous parties need access to the same information. Digitalizing trade would be a game-changer and several companies [including Bolero of the United Kingdom, Wave of Israel, and EssDocs of Malta] are already working to digitize the bill of lading process.

2. Payments –
Of course, payment is the most obvious reason why blockchain technology exists. While cryptocurrency has been lauded as the currency of the future, commercial banks and other financial institutes have repeatedly frowned upon its use. But now, everybody is keeping a close watch and waiting to see who takes the first step. Blockchains technologies have proven to be a faster, secure payment system. 

 However, the problem lies in its decentralization and irreversible payment system. They fear that bitcoin and other cryptocurrencies could pose a threat to their control of monetary policy. Many commercial banks don’t wait anymore for someone to take the lead and already started changing their payment systems to blockchain technologies. Those technologies help banks to save a lot of money. In the coming years, many central banks could issue their digital currencies as an alternative payment option. The potential in blockchain technologies is huge, and commercial bankers finally realize that and implement them in their systems.

3. Clearing and Settlement –

Keeping a record of all the loans and securities in the tangled web costs Banks Billions of dollars annually to operate. according to Accenture by using blockchain technologies could save up to 10b $ annually. Investment banks could hugely improve the post-trade clearing and settlement on to the blockchain technology.

4. Syndicated loans –
With a whole lot of technological innovations coming up daily, syndicated loans seem backward – much of the communication is still carried out by fax. On average, it takes 19 days for a bank to settle a transaction when a company from the United States raises money via a syndicated loan. Until recently, blockchain technology is now being employed as a means of managing the lifecycle of loans. Many financial institutes are now using syndicated loans on blockchain systems. This ensures faster communication and gives many parties easy access to loan records. While blockchain alone won’t solve all the challenges in the syndicated loan market; however, it will aid business process changes.

5. Identity –
In the banking sector, verification of customer IDs is crucial. Without it, criminals and money launderers would get away with people’s money without a trace. The number of new customers increasing on the daily basis, tho the banks have yet to find the formula for setting up an updateable shared customer database. Experts believe that blockchain could be key to customer identification because of its ability to share a constantly updated record with many parties and of course, its cryptographic protection.

So which areas of banking do you think would stand a chance of being entirely transformed by blockchain?

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