Traditional financial processes rely on numerous manual operations to accomplish their daily business. Banking industry veterans are exploring opportunities to use Blockchain in their FinTech stack to increase team productivity by boosting the speed of digital document processing and accelerating data development while strengthening security and transparency.
Blockchain is an open, shared ledger that stores transactions between two trusted parties. Since it stands on individual data blocks with connected transactions linked in a particular order, it allows all parties to access a shared digital ledger across a computer network without a centralized authority or mediator. That is why Blockchain would effectively assist financial organizations in processing transactions faster.
Applications of Blockchain in Banking
Here are a few uses of Blockchain technology in the banking industry:
Quicker Payment Processing
Today banks can leverage cutting-edge technology like Blockchain for faster payment processing by developing a decentralized channel. Leveraging this technology in the FinTech stack enables banks to accelerate their payment processing time while reducing costs. Blockchain technology helps to reduce the need for third-party verification.
Clearance and Settlement Systems
Currently, most banks rely on centralized SWIFT (Society for Worldwide Interbank Financial Telecommunications) to settle and monitor transactions.
Instead of utilizing SWIFT protocols, banking institutions can leverage Blockchain to resolve and track transactions efficiently.
Banks with the best FinTech stack implemented may face challenges. Even simple bank transfers must go through multiple intermediaries and meet all the compliance requirements before moving money. Multiple intermediaries get involved in transferring the funds to the right account, and these transactions are expensive and time-consuming. Banking institutions can embrace Blockchain technology in their FinTech stack to track worldwide transactions. Blockchain allows banks to complete transactions without intermediaries or regulatory organizations.
Purchasing and Selling Assets
Businesses in the banking sector that leverage Blockchain technology can minimize asset exchange fees by eliminating intermediaries and transferring asset rights. Various analyses and studies prove that adopting Blockchain to move securities has significantly reduced global trade expenses.
Purchasing and selling digital assets such as stocks can be challenging as it includes a huge amount of tracking on ownership. Earlier, the buying and purchasing assets involved an intricate network of exchanges and mediators. Moreover, as these transactions were all paper-based, it was challenging for the resources to keep track of them. Even when banks used digital channels to track them, it was still difficult and time-consuming. Hence, buyers and sellers had to depend on a third party to manage their paperwork. Banks can integrate Blockchain technology in their FinTech stack to potentially revolutionize their financial sector.
Accounting and Auditing
Digitization and the rise of Internet banking have allowed accounting to flourish slowly compared to other banking tasks. Multiple regulatory bodies have set standards affecting data validity and integrity to digitize the accounting process. Embracing Blockchain technology will enable it to revolutionize the accounting and auditing sector. Banking industry veterans consider Blockchain technology a potential solution to streamline compliance procedures and optimize bookkeeping processes. Leveraging this technology into the FinTech stack will allow organizations to add the data to an ordinary book instead of keeping a separate record of transaction receipts. Blockchain technology will ensure that all the transaction entries will be decentralized and that all the concerned parties have access to it. Hence all the records will be more secure and easily accessible to ensure security. Blockchain acts as the virtual notary that validates every transaction.
Digital Identity Authentication
Most businesses in the banking industry still use traditional manual document authentication processes based on paper for verifying customer IDs. This verification process is tedious and time-consuming, which hampers the customer experience and forces the client to move their business to a digitized bank. Integrating Blockchain technology into banking processes will help organizations build a faster, more efficient, and more secure customer authentication procedure. The utilization of client data for digital identity verification in other services and firms is made possible by Blockchain.
Also Read: Strategies to Modernize the FinTech stack
Peer-to-Peer (P2P) Transfers
Clients can leverage P2P transfers to transfer money digitally from their bank accounts or credit cards to another individual. Various vendors in the market offer P2P transfer applications, but they might have a few restrictions. For instance, the P2P transfer application will allow users to wire money within particular locations. A few might restrict money transfers if both parties are in the same country. Additionally, P2P services might have high commissions and be less secure in saving sensitive consumer data. Embracing Blockchain in the FinTech stack will help businesses to overcome all these bottlenecks by supporting the decentralization of peer-to-peer transfer applications. One of the most significant benefits of Blockchain is that it has no geographical restrictions to peer-to-peer transfers worldwide.
Hedge Funds
A hedge fund is an investment alliance that involves fund management and multiple limited partners that are investors. These players are usually traders instead of ordinary investors, and they seek hedge funds to increase investor rewards while reducing risk.
Earlier fund managers working for a single company managed the traditional hedge funds. Embracing decentralized technologies like Blockchain helps optimize the financial services industry processes.
Banking industry veterans are exploring more opportunities to leverage Blockchain Technology in their FinTech stack to optimize business operations.
