Blockchain technology is rapidly becoming integral to our lives as it revolutionizes how we conduct business. A blockchain, a distributed ledger open for public access and secured with cryptographic measures, has been making waves across sectors like banking, healthcare, government institutions, and retail businesses. It provides unchangeable transaction records that pave the path toward new possibilities in many industries worldwide.
This blog post will analyze the possible benefits of crypto in banking.
Understanding Blockchain Technology Through Banking Context
Blockchain technology is revolutionizing the way financial transactions are conducted. It grants users a secure, distributed platform to move information between parties without external verification or intermediaries. A network of computers connected via the internet stores copies of transaction data that cannot be altered, ensuring authenticity and trust when making online payments.
The banking industry has quickly embraced distributed ledger technology (DLT) to bring innovation and ensure secure database operations. According to McKinsey, DLTs have the potential for significant savings — up to $4 billion in cross-border payments; $1 billion in retail banking costs; and a reduction of fines by $2-3 billion, while fraud losses could drop as much as $7-9 billion annually.
Potential Benefits of Blockchain
Blockchain has tremendous potential to revolutionize the banking industry and make it more secure, cost-effective, transparent, and efficient. Here’s how this revolutionary technology could shape our financial future:
- Crypto Payment Methods Will Speed Up International Transfers
International money transfers (IMTs) are known for low transfer speeds due to the need for instructions to be transmitted through multiple intermediary banks before eventually reaching the intended destination bank. This process can typically take several workdays. Blockchain in banking exists as an entirely new way of completing IMTs much faster — Bank 1 sends funds directly to Bank 2, which will drastically reduce wait time from days to seconds! Additionally, third-party verifications no longer have a significant role in blockchain’s innovative approach.
- Blockchain Decreases Transaction Costs
Utilizing the traditional SWIFT and Western Union systems for international money transfers can result in costly fees, with a range of 5%-20% being charged on sums sent. When these high rates are applied to more significant transactions, unreasonable amounts may be incurred by those transferring funds — often running into millions of dollars. As a result of banks charging their fee, sky-high charges occur at both the source and intermediary banks. Fortunately, Digital currency in banking offers an economically viable alternative; when utilized, much lower costs ensue — within 2-3% rather than up to 20%. Therefore this modern solution provides considerable financial advantages over conventional methods employed previously.
- Blockchain May Improve the Loan-Taking Process
Lending institutions typically use a sophisticated credit scoring system to assess potential borrowers. Although the details of this process are often unknown, it is known that Experian, TransUnion, and Equifax provide financial data which lenders review when making loan decisions. Unfortunately, these systems can be inaccurate or contain errors leading to unfair terms on loans or denial altogether — an even more concerning issue being pointed out regarding the well-documented 2017 security breach at Equifax where personal information from 140 million consumers had been compromised. Blockchain technology can potentially make this process more transparent and secure.
How Crypto Banking Will Improve Financial Systems
Blockchain technology is revolutionizing the way we conduct business and interact with each other. Today, this innovative form of secure digital record-keeping has a wide range of advantages to help financial institutions, such as:
- Tracking transactions: Blockchain will simplify the banking process by enabling automated back-office operations. This produces enhanced accuracy, faster verification of transactions, and increased cost savings for businesses.
- Automated processes: Blockchain enables banks to digitally create and execute smart contracts, eliminating the need for a third-party intermediary. This process has multiple advantages: reduced costs, automated rebates/payments, IP rights licensing (NFT minting), and more secure contract execution between parties.
- Security: Through blockchain integration, businesses can make customer ID verification faster and more secure. It streamlines document processing, simplifies onboarding procedures, and allows customers to access other services using their verified data across different firms.
- Transparency: Blockchain technology revolutionizes the way transactions and value exchanges occur by providing high transparency through digital recording. This innovative system eliminates time delays associated with third-party verifications, reducing bank costs during funds transfers or payment processing.
Banking experts agree that crypto banking must advance to become a widely accepted technology. Its widespread adoption is paramount for the actual disruption of the industry through this pioneering technology. To do so, banks need to construct robust infrastructure and use matching solutions explicitly tailored for blockchain utilization on a global scale.
Final Thoughts
Years after their initial dismissal of it, financial organizations are now beginning to recognize the advantages that crypto in banking can bring in revolutionizing traditional banking processes. Already established applications demonstrate how cryptocurrency in banking could benefit the financial sector by boosting efficiency and cost reduction — while potentially ushering in a new era where banks operate currency-agnostic solutions beyond existing systems. The potential benefits promise an intriguing challenge for sector players ahead.