- What's blockchain and machine learning?
- How blockchain is transforming finance and banking?
- Fraud Reduction
- Know your Customer
- Smart Contracts
- Clearing and settlement
- Trade Finance
- Challenges to face by banks to adopt blockchain
Blockchain technology in finance and banking is beyond just supporting cryptocurrencies. It is transforming the way we use to make transactions, and we may see more reliability in Fintech banking solutions in the near future.
According to the reports conducted by Harvard Business Review, blockchain is going to transform the banks the way the Internet had done to the media. It has the potentials to solve significant problems facing today's financing system. It has all the attractive characteristics which are necessary for a reliable technology which includes money transfer solution. It is safe, fast, secure, decentralized and transparent and more affordable.
What's blockchain and machine learning?
Blockchain is a technology that facilitates trust between trading partners. If you are aware of the cryptocurrencies, then blockchain is supporting one of the popular cryptocurrencies, namely Bitcoin. Bitcoin makes it possible to transfer currency with utmost transparency and stay reliable for the completion of the transaction.
Banking and other organizations are using blockchain in different ways rather than just facilitating the transactions. Blockchain is also a secure ledger, or you can say a list of operations. There are many benefits of implementing blockchain in Fintech financial services with its unique features.
It is distributed
There can be numerous copies of the ledger like the public blockchain or the private blockchain. The blockchain behind Bitcoin gets published and copied in many places. All new transactions are broadcast to a new board of networks and the participants can be added on these transactions in the ledger. It is a decentralized ledger and nobody controls it. But the system is designed in a way that everybody's ledger contains identical information.
It is immutable
It maintains an accurate history of transactions. There are multiple copies of the ledger, and it is hard to alter or delete the transactions. To remove or change the transactions, you need to modify all the copy in the ledger in every location, which is nearly impossible.
It's fast and affordable
Sending money to another country is smooth and easy, like never before. Today's consumers and businesses transmit hundreds of billions of dollars internationally, and blockchain is supporting them. The conventional process of transferring money is expensive and complicated.
How blockchain is transforming finance and banking?
blockchain enables transparency in the trading environment
The blockchain development services have changed the paper-intensive international trade finance process to an electronic decentralized ledger which gives all the participants entities, including the bank. It provides the ability to access a single source of information. It enables the banks and the participants to tract all docomeentation and validate them digitally as an unalterable ledger. Here are how blockchain is contributing to improving banking and mobile finance solution.
Can blockchain be hacked?
It is recognized as the new technology that would reduce fraud in the financial sector. According to a survey, nearly 40% of the commercial stock exchanges and money transfers are prone to hack and other online crimes. Most of the banking systems across the world had built a centralized database, which is more vulnerable to cyberattack because once the hacker attack one system, they can get the full access of all the centralized database. As blockchain offers a decentralized database, it is difficult for hackers to hack all computers and data.
Know your Customer
According to the Thomson Reuters survey, when it comes to knowing the customers, the financial organizations have invested nearly $500 million per year to keep up with their clients and customers. These regulations are meant to help reduce the possibilities of money laundering and terrorist activities and by checking the requirements of businesses to verify and identify the clients. The blockchain technology has allowed the financial organization to access their verification details and avoid the repetitive tasks of knowing the customers again and again. This will ultimately reduce the administrative cost of the banks.
Smart contracts are ideal when it comes to two parties to agree for their work and payment mutually. Blockchain facilitates intelligent contracts. As the name suggests, smart contracts are the contracts between the two parties to initiate and record the financial transaction. It helps both parties to conduct the business transaction in accordance with the agreement of the contracts. The parties can execute the payment only after completion of the contract.
Clearing and settlement
The websites which record all loans and securities can cost a billion dollars to the banks. Banks must invest heavily in cybersecurity to protect these data from theft and ransomware. The banks can transfer their post-trade clearing and settlement on to a blockchain system which can be more comfortable for the banks to maintain and also to save a million dollars for security.
It is still mostly based on paper like the letter of credit, the bills of lading and the post around the world. Blockchain is a simple solution when numerous parties have access to the same information. This is an essential element of the supply chain as it offers a vast amount in this area. According to Mr Ramachandran, the head of innovation for commercial banking at HSBC, "it will take five years to digitize the entire trade ecosystems such as sugar and energy, but blockchain technology has the potential to be genuinely game-changing."
When did blockchain start?
HSBC tested first blockchain transaction
Challenges to face by banks to adopt blockchain
Although blockchain has its advantages in terms of security, facility, and ease of payment, it has some hurdles that the banks had to conquer. The are many challenges that the banks and financial organizations have to address to grow ahead with the help of blockchain technology.
Privacy is the primary concern when it comes to storing the customer's data, their funds and their credentials. As blockchain is a shared and decentralized network, it is critical to ensure that the data stored on the ledger is kept securely and would not hamper the identity of your customers. All the transactions made on public blockchain are publicly available, and the need for exploring the potential of private blockchains for data-critical sectors is needed along with the resolution.
The blockchain network should be secure and robust, and it should be embedded with cryptography techniques. The cryptography networks are hard to hack, and any security breach in this network needs high computational power.
Encryption keys are essential for blockchain as they play a role in securing the data of any individual. The banks can generate a private key to keep their customer's data securely. The banks can also use these keys to store their data and for finding loopholes in their network.
The growth of existing databases is undeniable. The banks can record an unlimited number of entries which poses a significant challenge to the application of blockchain technology. Thus, the blockchain network should be able to handle the growing traffic while maintaining the speed, accessibility, and ease of the transactions.
The legal regulations are mandatory for all banks across the world. As the blockchain supports cryptocurrencies, and some of the most popular cryptocurrencies do not have any rules, which makes them susceptible to profit and losses. Also, many nations do not support the use of cryptocurrencies.
Despite the strict jurisdictions and many hurdles, financial organizations have started to realize the potential of blockchain technology. The tech giants in the banking sectors have already begun testing blockchain in facilitating their operations. Blockchain's future of the banking industry can solve a lot of problems while making the system more transparent and reliable.
Nikunj Gundaniya, Product manager Digipay.guru, one of the leading digital wallet solutions, which provides mobile finance application development services. He is a visionary leader whose flamboyant management style has given profitable results for the company. He believes in the mantra of giving 100% to his work