Banking is a huge billion-dollar industry, with thousands of related businesses all over the planet. Many of us have numerous accounts, credit cards, mortgages, and even student loans from banks.
Despite this widespread usage all over the world, the industry hasn’t seen much in the area of massive innovation. While there have been some small changes such as online banking and using your camera to deposit a check, the banking industry as a whole and how it operates has been a little slow to advance over the years.
However, this is starting to change across the globe with the rise of the cryptocurrency market. In particular, blockchain technology is gaining some ground in the banking industry and could effectively change how banks operate. For example, Canada and Singapore have recently used blockchain to settle cross-border payments, which was the first instance of central banks turning to this tech. However, many smaller banks have already grabbed their piece of the blockchain pie.
So, why are banks jumping on the blockchain bandwagon all of a sudden? Well, there are several different potential use cases for blockchain in banking, and ways it can improve the industry and bring it forward. Blockchain technology allows for a higher level of security than traditional measures, as well as offers faster transaction speeds. In addition to that, the costs are often much lower with blockchain as well.
With that in mind, this article is going to look at the various ways that banks could be (or are) using blockchain technology to help improve their operations in one way or another.
Better International Payments
Billions of dollars in international payments are sent via banks, and the process is less than ideal. It can be incredibly slow and expensive to send money across borders, and can be quite annoying for customers and banks alike. For example, imagine you are living and working in the USA and looking to send some money back to your family in the Philippines.
The amount you send will be subject to a fairly hefty fee, simply because of how many intermediaries there are. You will often pay fees to the bank, the company that transfers the money, the companies who clear the money and the bank that receives the money. In addition to the fees, all of these stops that your money needs to make can mean a longer time until the money gets where it needs to go.
Using blockchain will allow these international payments and transactions to be much quicker and more affordable than they are today. This has benefits to people on both sides of the spectrum, and will surely become one of the first uses many banks have for blockchain technology.
Allow Banks to Create Their Own Digital Currency
One thing that you might not think of is that blockchain technology will allow banks to create their own tokens or digital currency. Whether these have a function within the bank itself (pay for transactions, unlock lower rates, etc.) or are simply used as cash or as an investment, you can be sure this is on the radar of banks everywhere.
Banks are seeing the success that blockchain platforms are having with cryptocurrencies and tokens, and want a piece of the action. Although it might be a while before we see the related cryptocurrency become mainstream, banks (or groups of banks) will soon start creating their own digital currencies to be used. And there’s actually a pioneer - JPMorgan Chase - who has already launched its digital token, JPM Coin.
Better Transparency for Reporting and Auditing
One of the largest problems within banking is a lack of transparency, but the good news is that blockchain is inherently transparent, while still remaining safe. Currently, reporting information to regulatory bodies and monitoring/auditing can be an expensive and time-consuming process.Not only can blockchain make it cheaper, but it can also speed up everything from reporting information to auditing banks. Theoretically, regulators could also have access to the bank’s blockchain which will easily allow them to see and check what they need, and when they need it. With blockchain also being tamper-proof, you also don’t need to worry about the numbers being fudged.
Less Operational Costs for Banks
An often underrated aspect of blockchain that could be huge for banks is how it can make safe, secure and transparent peer-to-peer transaction viable. This will save the banks a lot of money, as a lot more goes into sending a standard transaction than you might have thought.
There are custodian banks, which are in charge of actually sending money from one bank to another, as well as clearinghouses - those who actually process the transaction and make sure the senders have the necessary funds to make the transaction complete. These groups or individuals all need to be paid for their roles in the successful transaction.
However, using blockchain would eliminate the need for these types of middlemen. This would obviously save both customers and banks numerous costs on every single transaction. Sure, implementing the blockchain solution or ecosystem could require large upfront costs, but think of it more of an investment than a direct cost. Sooner rather than later the banks will be reaping the benefits of these lowered operational costs.
With all of these different reasons, along with others, it is easy to see why banks are starting to use or have plans to use blockchain technology at some point soon. There are so many use cases and many more will surely come about in the future. It can help them operate more affordably, offer better services and introduce things the industry has never seen before.
In conclusion, hopefully this article has been able to show why so many banks are showing interest in blockchain and hopping on the bandwagon. While many banks are still evaluating blockchain solutions, give it a few years and we will likely see a much higher prevalence of blockchain in the banking industry.