Blockchain in Banking: Current-day Applications and its Future

The widespread adoption of Blockchain has given rise to a furthermore disruptive sentiment – Decentralized Finance

Technological changes have metamorphosed the banking industry in unimagined ways. One of the newest disruptors – Blockchain – lets multiple participants to fact-check data without allowing them access to the details of the data. Sounds impossible? Well, the tech. solution has rightly earned its status as a disruptor.

In a Blockchain, information is validated by multiple contributors, making it impractical, and almost impossible to hack or manipulate. The information is not readable by its validators and can be accessed only by those who own it. Worthy of praise by the biggest tech. giants, Blockchains are thriving as a savior for the data world.

Its job may sound like an upgraded version of a bank’s major task – security for sensitive data. And, it’s precisely that! Thanks to the new-age storage, banks now have one less task. Overcoming the skepticism of its initial days, Blockchain is doing what it promised. Major industries have finally accepted that safekeeping and legitimization of data are much easier than ever before, which was once cost-and-labor intensive.

Though on the flip side, the widespread adoption of Blockchain has given rise to a furthermore disruptive sentiment – Decentralized Finance.

Decentralized Finance: Can we Safely Call it the Future of Finance?

Decentralized Finance (DeFi) is a Blockchain-based form of finance that does not rely on central financial intermediaries such as brokerages, exchanges, or banks to offer traditional financial instruments, and instead utilizes smart contracts on blockchains. DeFi services run on open-source software code, just like Blockchain, and are the most user-inclusive financial medium to date. According to academicians, DeFi products and services can be combined and modified in endless ways, but are prone to major risks too.

In May 2021, over $80 billion worth of cryptocurrencies were locked in DeFi contracts, up from less than $1 billion a year earlier. On Aug 3, 2021, the total value of the market was $69 billion. Though, it’s only a fraction of the $20 trillion global financial sector.

A huge wave is headed our way, and banks need to observe shifting sentiments to mitigate risks. Appropriately, Blockchain offers new-age data storage and security to help banks cut costs and shift their focus to the need of the hour.

Mainly, adopting blockchains based on integrated solution architecture will allow banks to set the ball rolling for advanced adoptions in the future. Secondly, competing in the digital sphere needs modernized customer-centricity for a varying range of services, and blockchains have been developed solely for ease of use and simplicity in user protection.

On that note, here’s what Banks should look forward to strategizing services for –

Adopting Blockchain Today? Look to Build an Integrated Finance Ecosystem

The shift that blockchain is helping towards is – Advanced cognitive systems and AI, ML, and NLP capabilities will soon access Blockchains and help in evolving the customer experience. It should help create cohesive and personal digital journeys by harnessing a data environment renovated with structured, unstructured, alternate, and internal data – all accessible easier than ever.

Open banks and other innovative financial services are being built with blockchain in their foundation, which is posing a challenge for banks with a traditional customer base. Banks are in cold waters as they need to retain customers while building a new-age ecosystem that will only come from tireless innovation with quick tech. adoptions, rounded integration strategies, and an evolved outlook towards banking.

Like every novice disruptive tech. product, the market acquisition comes sooner than later. Here, even though blockchain-based banking is in its infancy, a few integrated ecosystems are already being adopted by Global and Indian Financial Institutions

Single Digital Identity Verification

Banks wouldn’t be able to carry out online financial transactions without identity verification. However, the verification process consists of many different steps that consumers tend to dislike. For security reasons, all of these steps need to be taken for every new service provider, but with blockchain, processes are shortened extensively.

A popular innovation in this area isZero-Knowledge Proof (ZKP). A zero-knowledge proof or zero-knowledge protocol is a method by which one party can prove to another party that they know a value x, without conveying any information apart from the fact that they know the value x.

No-Bounds Global Trade Finance

Trade finance, where all financial activities are related to international trade and commerce, is still dependent on invoices, letters of credit, and bills. Multiple order management systems pushing to get the work done online are failing because the process takes a lot of time.  

Blockchain-based trade finance will streamline trading processes and get rid of time-consuming manual processes, eliminate paperwork, and integrate important processes using the most secured channels.

Next-Gen Security for Quicker-than-Ever Finance

Companies are evolving their customer-centricity by following data-centric approaches and are transforming customer experience for it to work as a competitive differentiator. Apart from the main issue of security in the integration of huge ecosystems, Blockchain will help with -

  • Faster payments with publicly visible legibility of recipients

  • Faster settlements and money transfers without lengthy processes of regulation

  • Faster buying and selling of assets under a single ledger that connects practically everything

  • Simpler fundraising through legally protected public trading platforms