$2 trillion. That is the total addressable market size of the crypto economy. And 13 of the largest banks in the world have largely invested $3 billion into blockchain technology backed companies.
Not only that, central banks along with governments are also trying to validate traditional operations with blockchain solutions, Central Bank of Brazil is currently studying the feasibility of Distributed Ledger Technology (DLT) for interbank payments and decentralized information exchange platform. Also, a consortium of 15 Indian banks formed a blockchain platform to streamline financial services.
The banking system traditionally enables companies, groups and individuals to connect and carry out trade and commerce activities. Now, Blockchain based banking systems can replicate and accomplish the same but with potent security and transparent manner. This shared electronic ledger holds the potential to uplift global trade by doing away with manual processes with automated ones.
Now, with the advent of Blockchain Technology which can directly connect the banking institutions removing the need of additional intermediaries facilitate more secure and faster payments, which could be a boon to the banking industry.
- Rapid Money Transfers / Instant Payment: Banking Institutions currently rely on Society for Worldwide Interbank Financial Telecommunication (SWIFT) which is used by 11,000 institutions across 200 countries. This is considered the gold standard for reliability and security in financial transactions. Along with banks, financial institutions also use SWIFT for cross-border payment & transactions.
- Cost-effectiveness: Banking institutions rely heavily on various intermediaries to enable their operations, from facilitating communication to payment clearing and settlements, a large network of intermediaries is always at work. A holistic solution like Blockchain can cut out on these intermediaries and inefficiencies, realizing a significant cost reduction for Banking operations.
- Reinforcing Security: Technical glitches, Data breaches, Hacking, Human Errors and Cyber-attacks in Banking system has exposed vulnerable side of the industry. Financial details, Credit Card and Personal data has previously been exposed and customers were left in lurch. Decentralized nature of Blockchain avoids single point failure and data breaches also providing a secured level of protection in the form of smart contracts.
- KYC System: Blockchain enabled KYC can collate information from various sources into one unchanging database with no requirement of to verify the authenticity of information. Users have to undergo KYC only once to verify identity.
- Credit & Lending: Blockchain can offer a cost-effective, efficient and secure way of making loan backed by cryptographically secure details of previous loans and credit score
The disruptive advancement of Blockchain is pushing European Banks to adopt the Technology and shed-off reluctance to change. Recently, a consortium of seven largest banks in Europe has onboarded IBM to develop a blockchain trade finance platform to facilitate cross border trade and business across the region. IBM Blockchain is powered by Hyperledger Fabric and the solution is deployed on IBM Cloud to facilitate domestic as well as cross-border trade for small/medium enterprises in Europe helping to build trade transaction transparency.
Bank of America with Microsoft initiated a project to use Blockchain technology with Microsoft’s Azure Blockchain-as-a-Service for facilitating faster, cheaper, transparent and secure trade transactions. They are aiming to simplify trade financing which currently is costly and time-consuming.
Convinced with the prowess of Blockchain, recently a consortium of 15 Indian Banks led by State Bank of India (SBI), formed a joint venture ‘Indian Banks’ Blockchain Infrastructure Company Private Limited (IBBIC)’ primarily to be used in streamlining traditional procedure of Letter of Credit (LC) and GST billing. Back in 2019, some of the largest banks in India was onboarded on JP Morgan’s Blockchain Platform facilitating faster cross-border transactions. Also, State Bank of India (SBI) has collaborated with BankChain and Intel to introduce blockchain based secure banking system, simultaneously increasing the efficiency of transactions coupled with inherent security of data.
SCALABILITY & FUTURE:
The future of Banking Technology lies in Blockchain but, before that industry-wide infrastructure needs to be facilitated to establish globally scalable blockchain backed banking network. Central Bank of Singapore in partnership with the Association of Banks in Singapore is scaling-up their infrastructure by introducing a set of blockchain prototypes for decentralized interbank payment and settlements.
In order to reinvent the existing procedures, Banking industry needs to join hands with ecosystem players, this will again encourage the banking institutions for adopting a disruptive mindset for delivering augmented customer centric services.
The hesitancy around Blockchain is being eliminated with the on-going pilots and initiatives backed by trustworthy stakeholders of Banking ecosystem. As the case, The Saudi Arabian Monetary Authority has initiated a pilot ‘Project Aber’ along with the United Arab Emirates to streamline DLT for interbank payments and settlements between Saudi Arabia and the UAE.
Inspite of all prevailing challenges, Blockchain based Banking System is inevitable, and once blockchain reaches widespread adoption becoming global standard it will facilitate more inclusive and transparent banking eco-system with faster banking processes along with reduced costs.