Blockchain technology has become a real breakthrough in data storage and transmission as it has provided a new beginning for the data storage and transmission. Unprecedented information security and general transparency taking place within the blockchain systems are those things blockchain is very much appreciated.
Many industrial spheres are now striving to find ways to take advantage of this or that blockchain feature to encourage development in frames of communication and conducting of transactions. The banking sector is one of those that could boost its development with the help of blockchain.
What contribution may blockchain technology make to banking?
As we know, blockchain presents a digitized public transaction ledger. Ledger is filled up with the information from individual computers decentralized networks. The ledger then stores the information in blocks that go one after another in such a way constituting a chain. Blockchain, in fact, may offer to the banking sector such instruments that will lead it to the next level of evolution. How is it possible? Come to think of it, blockchain may be used as a basis for programming the main functions the banking sector needs. We have already stated that the most important things about blockchain are information security and operational transparency. Why is it so?
As for security, the decentralized character of the blockchain awards it with a sufficient level of security unlike that of the centralized systems. Blockchain systems are much more protected from hackers. It makes sense as it is much easier to attack a single system than a set of nodes all functioning independently.
As for transparency, information blocks go one by one in such a way building a chain, each of them has its own place in the exponential group of information pieces. The system registers all the operations within the system in real-time mode. That allows tracking any of them. Moreover, nobody can interfere with the process or change characteristics of how the operation goes as well as to make any amendments.
The overall blockchain technology performance potential remains to be seen, but the banking sector has already found out how it may use those features that are already known. It may enhance any kind of activities connected to storage and remittance of finances as well as to credit provision.
Here we present potential applications of the blockchain technology in banking sphere:
Committing payment operations is the primary function of any bank. Time is money and even several days that are needed to conduct a payment matter. Especially taking into consideration that some operations may even take more than a couple of days or even a week. In frames of doing business and making money, such terms are nothing good. The problem is that the system connecting different financial institutes is extremely complex.
Nowadays, the main system that helps banks to conduct operations is Swift. But Swift is just a system that connects institutes and beyond the bonds of that, there are much more issues to be solved. To arrange some things even a mediator is needed. Attracting a mediator results in higher expenses and takes more time to complete a payment transaction.
And here we can speak not just about a potential ability of blockchain to show its power, as a talented team based in San-Francisco has already launched a project that is called Ripple. It uses blockchain to carry out financial transactions and now presents a substantial competitor to Swift.
Clearing and settlement
As we have already stated above different financial transfers may take a plenty of time "dangerous" for business. It is the clearing and settlement procedure that takes the biggest part of the time "lost". Clearing is performed via verification of the details that presupposes making a lot of contacts between the financial organizations. Moreover, clearing is that very operation that presupposes the attendance of a third party. Any job is to be in this or that way, so be sure that "third party" will get its commission which often is quite high. Using blockchain database network to carry out clearing and settlement would allow getting rid of red tape and greater expenditures that are of no one's interest.
Why would using blockchain in this direction be an extremely good investment? The answer is simple as that: opportunity to save as many as $20 billion. Good money, don't think so?
Meeting legal requirements
Law is meant to protect people from themselves and other people. For the banking sector legal requirements are of the highest importance. It is impossible for a bank to send money to nowhere. Everything is verified very accurately. All the checking procedures take much time as well.
Could blockchain technology help here? Absolutely. The unprecedented transparency that is provided by blockchain systems is a real salvation. The databases would be able to contain all the necessary information and in such a way would ease the whole verification procedure.
Sometimes banks work cooperates in frames of lending, often their client is a big corporation. Such kind of cooperation needs a lot of documents to be transferred not only between the banks but between third parties as well. In spite of the fact, digitalization goes in its full pace most of the contacts are made with the help of fax. Just imagine how much time is getting lost. The same time could be saved with the help of a database where all the information is kept in a chronological order, and this is nothing but blockchain.
Bank as an institute has gained its focal role in trade financing. It would no exaggeration to say that thanks to banks companies may stay calm awaiting their deals to be completed. Banks are those guarantors of peace between the partners. It is understandable that their work is all about documents, but it not understandable again why in this almost fully digitalized era so many things have to exist in written form - we are speaking about innumerable letters of credits, shipping documents and so on and so forth. Blockchain could become a really big step and trade financing really needs it.
Not to be too much rhetorical we would like to present to your attention a number of users of blockchain initiatives that have already won users' hearts.
First of all, there is a great number of banks from all over the world among them: the Bank of China, China Construction Bank, the Agriculture Bank of China, ALFA Bank (Russia), Commonwealth Bank (Australia), LatiPay (New Zealand), Tokyo Bank (Japan).
We are sure all their work and diligence will make a really good contribution to the development of the Banking Sector which cannot be imagined in this digitalized era without the most considerable breakthrough, i.e without the blockchain technology.