Over the past decade, one term that has been doing the rounds is ‘blockchain’. This revolutionary new technology has already started disrupting the way business is done in every field from the music industry to how we find counterfeit products, from how governments operate to even how accounts are maintained.
Amongst these, one sector that this technology is predicted to revolutionize is banking. This is because banks are still heavily dependent on paper and computer-based systems that are fast being considered outdated and in need of an update, particularly from a security and transparency point of view.
Most importantly, banks need a system embedded with reliable technology that can withstand frauds and address scalability and security issues. Many experts now believe blockchain can provide a solution.
What exactly is blockchain?
Blockchain technology as we know it was born in 2008. A ‘blockchain’ consists of a list of records of transactions called blocks. Each block contains a cryptographic code that contains the previous block’s complete record of transactions, including timestamps. Multiple such blocks form a chain – the ‘blockchain’.
Therefore, within a blockchain, any transaction can be efficiently traced in a trustworthy manner. Also, by its very design, blockchain doesn’t allow data to be altered, making it very, very secure.
So how can banks benefit from it?
Keeping financial records, particularly for the millions of transactions that are performed each day, is very challenging, and this is even more crucial for cross-border money transfers. There are security issues that malicious entities can exploit. Accounts can be hacked, transactions diverted and money stolen.
However, as we know, blockchain technology ensures the highest level of security for any transaction – including data and money transfers. This is why blockchain is increasingly being seen as a promising solution for the banking industry.
Banks can use blockchain technology to improve remittances. Furthermore, blockchain technology defies hacking, DDOS attacks, and other forms of fraud. It can also help banks quickly identify customers and trusted individuals or entities through a blockchain-enabled digital ID.
With less fraud, the overall cost of doing business decreases and presumably, the savings will benefit the customer. As of now, several major banks around the world are exploring ways to enable cross-border payments using blockchain technology.
How will this benefit customers?
If an expat in Kuwait wants to send money to their relatives back home, they have to visit an exchange, wait in line, pay in cash, and then pay a transfer fee to complete the transfer. The recipient might follow a similarly lengthy process.
However, with blockchain, this will no longer be necessary. Instead, both parties can complete an electronic transfer via a mobile phone – and it will cost much less too. This is because, with blockchain technology, activities that would have added cost, complexity, and delays can be easily automated and secured. Tools like smart Contracts can monitor when a buyer makes a payment, when a seller delivers and manage a variety of problems that may arise in-between. And this is just the beginning.
What the future holds
Like with every industry, the disruption of the banking sector was always inevitable. And one thing experts agree on is that blockchain has many advantages that the banking sector cannot afford to ignore, such as smart contracts and decentralized transactions.
As the technology grows, more and more banks are all set to implement blockchain in wider and wider spheres, making financial transactions completely safe, secure and trackable. It might take some time until we see the larger applications of blockchain within the financial sector, but we are slowly getting there.