Blockchain technology provides secure mechanisms to digitize and accelerate banking processes. It overcomes challenges arising from traditional banking practices which are manual, inefficient, and time-consuming. Private and public blockchain blockchain solutions can revamp banking activities to provide following benefits explained in detail in this blog post.
Let’s first understand how blockchain technology augments banking processes
Blockchain ensures trust, transparency, efficiency, and security in the network with cryptographic mechanisms, P2P transaction methods and immutable distributed ledgers. It disintermediates the system with a shared immutable ledger of recorded transactions. Although a distributed ledger enables all participants in a network to view transactions, they cannot modify them. It significantly reduces manual efforts required for verification and reconciliation using smart contracts that automatically generate a trail of financial transactions. Moreover, a distributed ledger is immutable and irreversible, which eliminates the risks associated with frauds and modifications.
Blockchain banking solutions eliminate intermediaries with the provision to manage immutable transaction logs for real-time transactions. They minimize the turnaround-time for transactions, lower costs of manual processes, and improve customer satisfaction levels.
Benefits of Blockchain Banking Solutions
Conventional banking today largely depends on manual, paper-based legacy systems to fulfill stakeholder requirement involved in every transaction. Blockchain provides a shared but encrypted digital infrastructure to expedite transactions, including contractual agreements. For instance, mortgage loan processes require a string of checks and balances between borrowers, loan officers, underwriters and home valuers. Blockchain can connect all the actors by updating the ledger automatically in a transparent manner.
Reduced Dependency on Intermediaries
Traditional banking transactions occur through a centralized system of authorities and intermediaries. As a result, payment settlement can extend from days to weeks. A key benefit of blockchain technology is that it eliminates third-parties for instant and transparent payments. It saves costs by avoiding intermediaries required for cross-border remittances and funds transfers.
Real-time Cross-Border Transactions
Sending money across international borders through traditional means are subject to anti-fraud checks, foreign exchange, and fund clearance. Blockchain solutions make cross-border payments efficient with peer-to-peer payment networks and decentralized authentication.
Reduced Fraud Risks and Increased Transparency
Unlike centralized banking ledgers, blockchain decentralizes the stored data with immutability and security mechanisms like cryptography. Blockchain does not store financial transaction and ownership data in one single place, instead all stakeholders in a network keep a copy of such data. So, any fraudulent activity or data breach becomes avoidable and instantly traceable.
Streamlined KYC and Customer Verifications
KYC and other customer verification checks cost the financial services industry on average $50 million, and some financial institutions even spend up to $500 million a year, according to Thomson Reuters survey. Developing these processes with blockchain can enable banks to access customers’ verified information instantly. Further, they can efficiently and securely share it with third-parties like savings and loan association, mortgage companies, insurance companies, and brokerage firms. It makes compliance efficient and reduces operational costs.
Secure Record Keeping Solutions
Since blockchain records, stores and transfers data across a common platform, it can provide secure exchange of business documents like contracts, land registry transfers, mortgage records, medical records, and even simple records like car ownership and repair history. It means that in the future all institutions may be able to verify records seamlessly without minimal involvement of stakeholders.
Choosing the right ‘use case’ and the right technology framework is essential for banks to avail blockchain benefits. Let’s consider cross-border remittance services for instance. Blockchain platform like Corda can eliminate obstacles of conventional systems in money transfer across countries.
Currently, according to the World Bank, the global average processing charge of remittances is 7.7% of the transaction value. It has a significant impact on those who want to send money across borders.
Global cross-border remittance system currently faces the following challenges
Companies operating in the remittance industry have begun to use blockchain technology as the backbone of new systems. They are exploring blockchain to overcome challenges such as high costs, high turnaround time, and vulnerability of legacy systems.
- Increased de-risking activities
- Failure to adhere with regulatory standards
- Lack of interoperability
- Expensive private remittance channels
- Inefficient traditional money exchange system
Solving the Cross-border Remittance Challenges with Corda
Our blockchain specialists at Oodles use Corda to develop solutions that streamline legacy cross- border payment processes. Corda can optimize the “pipes” through which the majority of cross border money flows. Corda remittance solutions provide the following benefits:
- Remove intermediaries, reduce operational costs, and enable minimal involvement of correspondent banks
- Provide cheaper and quicker remittance transaction solutions
- Improve visibility to information for banks and their customers
- Conduct bank to bank direct transfers
- Enable secure transactions between banks and access based visibility to data
- Reduce cost of cooperation with correspondent banks and SWIFT messages
Corda at a Glance
Corda is the second largest blockchain enterprise platform specially designed to enhance financial services and develop blockchain banking solutions. It addresses various banking challenges and lay the foundation for new revenue streams. On the one hand, it works as a permissioned network to enable a group of organizations records, manages and synchronizes contracts or other shared information privately. On the other hand, it operates as an open source platform that financial institutions can use to build applications on top of it.
- Enhances governance to the network of organizations participating in the transaction with private blockchain solutions
- Executes the business logic partially on the database with smart contracts to increase transaction speed, trust and privacy
- Banks can develop one or multiple blockchain nodes in the ecosystem of their application. The nodes will be assigned to share information with each other on distributed, shared and permissioned ledger
- Doesn’t require currency to maintain the network, although it has provisions for tokenization of assets and securities
- Enforces business rules through smart contracts that operate as the core function of the system. They either accept or reject transactions.
- Supports point-to-point architecture that enables only participants in the transactions can view
- Provides support for pluggable consensus with multiple algorithms in an individual network to enhance scalability
- Doesn’t employ consensus methods that require mining. It saves the cost and time required for mining
- Provides a blockchain application firewall for deployment within corporate data centers, along with provisions to communicate with nodes of other enterprises.
- Enable seamless integration capabilities with industry-standard databases including Oracle and SQL server
- Provides cross-distribution and cross-version wire compatibility as well as arrangements for operating mixed-version networks
- Provides high-performance and high-availability monitoring, disaster-recovery management, and security
Banks can avail multiple benefits with blockchain application development, such as faster syndicate formation, digitized documentation, quicker KYC operations, data integrity and immutability, and much more. Blockchain based solutions can automate several time-consumption and manual processes, expedite settlement cycles, and eradicate duplication of efforts and intermediaries.
Distributed ledger technologies like blockchain can lay the foundation for a better global banking experience.
How Oodles Can Help ?
Oodles has the experience and knowledge required to develop applications and blockchain banking solutions that can simplify complex processes of the financial services industry.
If you’re considering to outsource your next fintech project either for software development or complete platform development, drop us a query.