The Blockchain framework can virtually record everything of value. The new technology will challenge and disrupt present centralized business models and the financial services sector. Through the use of cryptocurrencies, new decentralized Blockchain-powered financial systems can simplify banking by removing intermediaries. Blockchain can help increase cooperation between banks by ensuring trust and security, which lies in the core of Blockchain.
Big banks implement Blockchain
Major banks have come together for a project called Utility Settlement Coin (USC) that is intended to facilitate the issuance by central banks around the world of currencies using Blockchain technology. The USC platform was created to make it easier for banks to close transactions with each other through using the Blockchain.
Cointelegraph previously covered this project explaining the details. The USC project was launched by UBS, BNY Mellon, NEX, Santander, and Deutsche Bank, together with Blockchain startup Clearmatics in 2015 aiming to use aims to use virtual currencies that could be amplified by fiat currencies issued on the Blockchain. These digital tokens then could be used directly forwarded to the owner of the asset, as opposed to going through the traditional network of clearinghouses. This project can pave the way for making banking between countries easier and improving the banking system as a whole.
What Blockchain offers for the banking industry
There are quite a few ways that Blockchain can disrupt the financial industry completely. This section will aim to explore all the ways Blockchain can enhance banking.
If Blockchain technology can be is implemented in the financial sector it has the potential to allow banks to process payments quickly and accurately than ever before. The technology allows for reducing transaction costs down the line. This can only be achieved if banks can build an appropriate infrastructure to operate on a global network using solutions based off the Blockchain. Although banks are still only in the early stages of adoption, use cases in banks have been seen for instance in cross border remittances, corporate payment.
Blockchain technology can reduce fraud in the financial world. Implementation of fraud reduction through the new technology has been discussed a lot more as economic crime is on the rise in stock exchanges and money transfer services with 45 percent of financial intermediaries reported to be affected. Blockchain’s distributed ledger where each block contains a timestamp and holds batches of individual transactions with a link to a previous block can aid in tracing possible fraud and simplify the process to eliminate fraud in the future.
Of course the smart contracts aspect of the Blockchain allows for storage of any kind of digital information. The codes in smart contracts can be created to make contracts or execute financial transactions. For example delivering products can then directly signal an invoice to be paid.
Know your customer is an important part of banking and millions of dollars are spent by banks to keep up with KYC and customer due diligence. This is used in order to help reduce money laundering and to help verify the identity of all the customers in the bank. Blockchain can allow for independent verification of one a client by one financial organization to be recognized in other organizations saving time and cost. The digital entry enabled by the Blockchain will eliminate duplicate entries in the system and allow for faster recognition of individuals between institutions.
The most convenient contribution of Blockchain to banking is the ability to provide an unforgeable record of identity, including the history of an individual’s transactions. This aid in KYC policies and also remove middlemen in the process as all the data can be securely stored and accessed.
David Grace, head of global finance at PwC ,commented:
“If you have a secure distributed ledger, it could be used to store validated ‘know your customer’ data on individuals or companies. … It’s a potentially global application that could provide more security over identity data and where that data are stored.”
Current implementation in banking
There are a few use cases and partnerships with Blockchain in the banking industry already.
The Commonwealth Bank of Australia has plans to integrate Ripple and use the network to transfer funds between its subsidiaries. Ripple implementation is part of the banks way to go into the digital banking era to make instant money transfers.
Recently, JPMorgan, UBS, Barclays and other banks, have turned to a startup venture R3 CEV to set up a private Blockchain open for invited participants to maintain and run the network. Their goal is to build an industry wide platform to standardize the use Blockchain technology.
Although Blockchain has many benefits that can help the banking industry it is still in the test stages in many cases. Blockchain has still a long way to go in proving itself in the finance world but it can definitely be implemented in an efficient way to revolutionize banking in the future.