Blockchain technology is proving to be a big challenge for the banking industry. This medium is causing a paradigm shift in the entire financial sector. Conceptions and misconceptions, both exist in the row of Blockchain. Some aspects of it are elusive and continuous research is being conducted on this technology, where it could save millions of dollars in the banking sector.
At present, sources disclose that this technology is illustrious for the transfer of funds in the financial sector, as can be seen in the graph below –
Banks are being attentive, and are spending a good chunk of their capital on this technology.
Some initiatives by various banks across the globe
As seen from the above data, banks from all over the world are slowly embracing the Blockchain technology into their system.
Why are banks adopting this technology?
There are many positive attributes of the Blockchain technology. Mentioned below are a few factors that have encouraged banks to adopt Blockchain:
- Effective P2P lending
- Cost effective and ease of trade in finances and remittances
- Holding recent LOC fraud
- Reduction in Banking frauds
- Effective in retail lending like PL, AL, CL & HL
- Security of transactions and relevant details
- Apparent transactions
- Rapid and fast payments, as well as settlements
- Efficiency in controlling property fraud, if the property is in a digital locker of the Blockchain model
- Protocol & security of financial payment
Blockchain in Investment Banking
In terms of Blockchain and investment banking, there will be an ease of detection for the current holder and receiver, and adherence to AML (Anti-Money Laundering) and KYC (Know Your Customer) policies in a digital way. Also, costs will be lowered in compliance and processing, of investment banks. This will be effective in trade finance.
Challenges to overcome
Although Blockchain has a wide range of positive attributes, there are a few challenges that banks have to face for its successful adoption:
- In terms of transactions between governments and regimes, who will control and monitor these transactions and under what legal framework?
- Identity management
- Ownership record management
- Personal record management
- Regulatory and legal framework
- Existence of digital banking fraud
Another new threat to this technology is the recent fall in the value of cryptocurrencies. This is mainly due to a recent hack in South Korea resulting in hackers stealing about $32 million.
What would the changes in AML and KYC policy be from the standpoint of a regulatory framework?
We have miles to cover in this journey, and there is the requirement for a quantum leap in this direction for improving the banking and financial sectors.