From the past few years, Blockchain technology has received a lot
of attention, not only from the cryptocurrency or NFT but also from the other
industries. Blockchain Technology delivers a higher level of decentralization,
transparency, and security and this is the main reason for its adoption into
various industries for growth and development.
Blockchain Technology, mainly known as a distributed ledger
technology (DLT), has emerged as one of the most innovative applications and
has a huge potential to transform the workings of the banking industry in
recent years. The Banking Industry is one of the most popular domains of
blockchain technology because of its features like transparency and security.
With the potential to reduce cost reduction, high data security and
Transparency, Blockchain Technology can reshape the banking process in a more
secure, reliable, efficient, transparent and flexible way.
“As per the Report of Business Research Company, the global market
cap of Blockchain in the banking and financial industry is expected to grow
from $1.17 billion in 2021 to $1.89 billion in 2022 at a yearly growth rate
(CAGR) of 61.9%. It is predictable that the market size will reach $12.39
billion in 2026 at a CAGR of 60%. “
Blockchain has an ability to transform the way the banking
industry currently works and make it more transparent, efficient, productive, secure
and cost-effective.
In this article we discuss some of the most common challenges
faced by the traditional banking industry and some of the use-case of
blockchain technology in banking.
Common Challenges Faced by Traditional Banking Industry
The current banking sector has been facing many challenges for a
very long time. Let's look at some of these key challenges of current banking
sector:
Difficulty in Handling Records
As the number of customers continuously increases, it becomes a pain
for the banking industry to uphold the complete record of the transactions.
This task becomes more complex in traditional banking. It ultimately takes more
time to process payments. Therefore, it is hard to handle and manage the
transaction records with speed, ease and securely.
Time Consuming Process
In the traditional banking system, the payment process took too
much time. There are many users and third parties are allied with any
transaction, so the payment process became lengthy and took 2 to 3 days or even
a week.
High Cost
The main responsibilities of Banks and financial institutions are keeping
people’s money safe and secure. In order to make this process successful they
need lot of processes as well as third parties as intermediaries. To make
the whole process simple and successful these third parties work for banks and
financial institutions. But when third parties are involved as a mediator in
the process, the cost factor increases with every transaction and it also takes
more time to execute the transaction. So, the payment costs became high and
also created a challenging situation for financial institutions and banks to
engage their customers.
Security Issues
One of the most common problems of all the banks and financial
institutions around the globe is Security Issues. They are commonly
facing events of cyber-attacks and financial crimes like bank account hacks,
data leakage, and fraud, just to name a few. So, in traditional banking the
security concern is still a major problem.
What are the use cases of
Blockchain Technology in the Banking Industry?
As we already saw the challenges faced by the current banking
industry. Now let’s see the different ways of blockchain technology that will
change the future of the current banking industry:
Fast Payments & Transactions
Current Banking System allows the money transfer facility
throughout the world. But the in current system the process took almost 2 to 3
days in verification and transferring the money between two parties. But the Blockchain
Technology allows money transfer by easy ledger entries without requiring a
centralized third-party mediator for the verification process. So, the whole process
took less time. Using Blockchain-based-solutions banks and financial Institutions
can lower the time needed for verification and settling payments.
Robust Security & Fraud
Reduction
Banks and financial institutions around the globe are facing the
same problem of cyber-attacks, bank account hacks, data leakage, Fraud, etc.
Blockchain Technology has the ability to eliminate these incidents as the blockchain
network is maintained by thousands of computers, meaning a single information
is stored in all these computers and there is no central point where hackers could
attack the network and alter the data. This feature of Blockchain Technology
helps banks refrain from the attacks from hackers and fraudsters, and secure
transaction data of their valuable customers.
Less Paperwork
In Traditional Banking, there is a lot of paperwork involved in
the great majority of financial affairs. Maintaining invoices, bills, documents
and contracts is a very responsible and challenging task for banks and
financial institutions. In Blockchain Technology the concept of Smart Contracts
for making contracts that decide, terminate, and update the values of all terms
and conditions. Using this type of technology can ease all the banking tasks
and make all the transactions hassle-free.
Cost Reduction
In traditional banking, if you are doing a transaction, there are
so many mediators and third parties involved in the whole process. The
interactions between these mediators maximize the expenses of a transaction.
Blockchain Technology allows transactions by easy ledger entries so there is no
need for third-party mediators during the whole transaction process. This helps
lower the interactions between the intermediaries. As a result, it will help to
decrease the overall expenses.
Reduced Human Error
In the Banking Industry maintaining all the documents like
Invoices, Contracts, Accounts, bills, Record-Keeping and settlement are one of
the most challenging tasks and the leading cause of cyber-attack and financial
crimes. If there is any innocent human error or simple negligence
happens, it has worsened into a massive cyber security issue. By using
Blockchain Technology, we can phase out many manual processes so thereby it
will automatically reduce human errors, improve the overall efficiency and also
reduce the impact of cyber-threats.
Future scope of Blockchain
Technology in Banking and Financial Services
The future of blockchain technology in banking and Financial
Services is going to be very interesting in the upcoming years. Over the last
few years, we have seen a swift growth and popularity in Cryptocurrencies and
NFTs. Many governments around the globe are thinking about replacing cash with
digital currencies. Cryptocurrency, NFTs are just a few applications of
Blockchain Technology.
As well all know Blockchain Technology is not yet adopted by all
the banking and Financial Organizations but they are slowly getting there.
Before adopting blockchain technology, there are so many streamlining processes
that financial institutions need to keep in mind. First, Financial
Institutions have all the required infrastructure and setup that needs for
blockchain and ensure that they follow all the standards for this technology.
It is only possible to implement blockchain technology, when the global banking
industry follows the standard.
Once blockchain becomes a global standard, there are significant
advantages, it will lead to more transparent banking systems, faster, reduce
human errors, reduced processing costs, and many more. All in all, the future
of blockchain in banking and the Financial Industry seems very bright indeed!
Final Words
Undoubtedly, Blockchain Technology has the ability to transform
the entire Banking Industry and leads to a more transparent, secure, faster
banking system. It also helps to create a secured database of customer data and
share it through different banking institutions without any problem. Thus, it
reduces the time, effort and overall cost of the entire process and also ensures
transparency and security.
The technology has the potential to reshape the current banking sector
by offering a secure and transparent system. While blockchain technology has
not been generally adopted by the banking industry, but once Blockchain Technology
becomes a global standard, its use cases are going to expand into the future and
we, at Hashstudioz Technologies Pvt. Ltd. are excited to be a part of it.
We are one of the leading Blockchain Development Company providing services like Smart Contract Development, blockchain app
development, blockchain consulting, fintech application development, &
supply chain management. If you are looking forward to developing and
implementing Blockchain solutions for your business, there’s no better
technology partner than us. So, if you are also looking for blockchain experts
to develop blockchain-based solutions in the banking sector? Get a free
consultation call from our blockchain developers, who have the experience and skills to help the banking institutions
discover the rising potential of blockchain technology.
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