Can blockchain transform the banking industry?
The digital banking sector currently faces several problems, including non-financial institution threads. In this article, read about how blockchain could potentially be a solution for financial services and digital banking. Blockchain can help with solutions such as an improvised identity system (KYC), and by reducing the change of fraudulent transactions.
Blockchain is among the trendiest technologies these days ruling the financial industry. Since its invention in 2008, blockchain has introduced various positive changes in businesses. Its advanced features like immutability, transparency, and decentralization have helped the industries work with utmost potential, globally.
Blockchain is well known for making transactions quick and easy, but there are very few people who are aware that there are other uses of blockchain other than supporting Bitcoin. With its advanced features and facilities, blockchain has helped various industries explore the global market with ease. Finance and banking are the industries that are leading the path with blockchain.
Challenges in the digital banking sector
Considering the people engaged in the traditional banking system, the digital banking sector seems to be quite severe. The highly structured banking sector has to face different challenges daily for managing budgets for covering routine tactical management. The pressure on the banks to innovate, grow, modernize, utilize new competencies, operate faultlessly, improve ethos as well as create an advanced operating program add to the performance pressure.
Regardless of such a complex operating environment, here are the prime challenges faced by the banks.
Non-financial institution threads
Not only financial institutions but even non-financial ones are now adopting capitalization serving the customers with various banking opportunities. The users widely utilize facilities provided by the non-financial institutions like direct transfer of money to the opposite party bank account and many more.
Again, the non-financial institutions don’t follow the rules and regulations maintained by the financial institutions. This provides customers with a comprehensive platform of freedom with high security, abundant customer base, and multi-generation technology, that has proved to be a boon for the non-financial institutions.
Multiple financial generations
Different generations have different ways of handling financial matters. Some prefer meeting in person, while some prefer everything done practically. People in long-distance relationships want transactions to be carried out through the internet or phones.
All this brings abundant challenges for the banking sectors. Financial institutions are adopting their business processes and selecting the modernized way of working. For the financial institutions, taking the omnichannel approach is among the prime requirements and this has been quite challenging for them.
Proactive and improved security
Security is a widely preferred requirement when it comes to financial matters. With the expansion of the economy and marketplace on a global basis, security risks are also well considered by the non-financial institutions. Be it transacting through omnichannel access or virtual payments, non-financial institutions are heading towards improvised techniques like minimizing risks, chasing fraudsters, etc. All this is carried out on platforms like internal and industry partnerships. Hence, the financial institutions are facing fierce competition to meet the security standards to serve the customers with the utmost safety levels.
Apart from all these, non-financial institutions remain updated with the latest systems through upgrading the old systems or even replacing them for meeting the challenges of the market, as well as the requirement of the customers. This has certainly been one of the challenging aspects for financial institutions.
Blockchain – A solution for financial services and digital banking
Blockchain is an innovative technology for the banking and financial sectors. It is serving as a decentralized and dispersed ledger for each, and every kind of transaction carried out through the P2P network. Banks and other financial institutions are practicing blockchain for working on how to use this innovative technology in order to leverage the inefficiencies of the current bank system.
For a clear understanding, let’s count on the top areas blockchain is transforming the banking industry with.
Improved identity system – KYC
Financial frauds and money valeting are rapidly increasing as the criminals are also using new technologies for committing such fraud. KYC is an effective way of fighting against such crimes. Know Your Customer or KYC is a process based on blockchain is the best solution to such frauds as this process collects data from multiple service providers authorized along with the cryptographic stores with a decentralized network.
Through KYC, banks can work on improving the inter-bank and intra-bank verification processes, which help in secure transactions. All this also eliminates the requirement of providing the customer information to various other banks repeatedly as well as reduces the cost of processing too.
Reduces the chances of fraud
Financial frauds have become yet another severe concern while performing banking transactions. The financial fraud plans have modularized financial crimes, and these activities have resulted in the downfall of various commercial companies, the global economy, the national economy, loss of trust, etc.
Blockchain has helped banks to a great extent in such issues. Blockchain makes it possible to share, view and store the digital information with utmost security. All the transactions are carried through cryptography encryption. Transparent decentralization is also looked after. This protects the entire transaction from any tampering. Hence, in this way, through blockchain, the banks can increase the security levels and transparency for the transactions.
Dealing in the stock market
Just as other financial services require the involvement of third-party, purchasing or selling the stocks also requires the approval of third-party for tracking the transactions, ownership of assets, transfer of rights, etc. This process is quite complex. It involves various brokers, exchanges, custodian banks, etc. that are included in the transaction. With the help of blockchain, the ability to locate the ownership and processing of the assets is quite easily carried out with the help of cryptographic tokens or bitcoins. It also makes the payment responsibilities safe and secure.
Blockchain has provided an excellent idea to the banking sector, and its implementation is undoubtedly to give magical results. Blockchain is a solution that can address various existing challenges and bottlenecks. The technology has provided the banks with speed, efficiency, reduced cost and security too in various processes which directly improves the eminence of the services for the customers.