The word ‘blockchain’ is derived from its structure, in which individual blocks are connected in a single list called a chain. Today, blockchain is one of the easiest methods for managing and storing information in a way that is tamper-proof to hacks or network cheats. A digital transaction record that duplicates and distributes across an entire network of computer systems is how blockchain works.
Nevertheless, many industries have switched to blockchain technologies, and banking is one such sector. Not only does it improve efficiency, but enhances security, supports quick transactions, makes unchangeable records, and allows no third-party involvement. This in turn cuts extra costs as well. When we consider the unique characteristics of blockchain, it’s only natural that the financial industry will be at the forefront of its implementation.
As Blockchain is a secure and transparent platform, there are various cases that help one understand how the financial service industry makes use of this technology.
Accounting and auditing
Accounting is an area that needs to match strict regulatory requirements for data integrity and validity. Hence, blockchain is a potential aid in revolutionising this field. Businesses can enter transactions directly into a joint register rather than keeping separate records based on transaction receipts. The entries are thus distributed.
Digital entry verification
Without having an identity verification, banks will not be able to carry out online financial transactions. For security reasons, various identification methods are needed for every new service provider. With the introduction of blockchain, consumers and businesses will benefit from faster verification processes. Blockchain allows the secure reuse of identity verification for various services. As long as providers are blockchain-based, putting this type of data ensures its security.
Banking institutions can employ emerging technologies to promote faster payments and cheaper processing fees by providing a decentralised channel for payments. Banks can introduce a new level of service, launch goods to the market, and eventually compete with innovative firms by delivering stronger security and lower payment costs.
Another area that is all set to restructure through blockchain is the trade finance area. By eliminating time-consuming manual processes, paperwork, and bureaucracy, blockchain-based trade finance will streamline the trading process.
Many banks face logistic challenges when it comes to moving money around the world. Before reaching its final destination, a simple bank transfer must transit through a sophisticated series of intermediaries such as custodial services. Additionally, bank accounts must be reconciled across the global financial system, which includes a vast network of funds, asset managers, dealers, and other entities. Blockchain, being a decentralised transaction ledger will allow banks to maintain track of all transactions in a public and transparent manner. They may just use a public blockchain to settle transactions.
Overall, blockchain-enabled banking applications will improve the customer experience while also assisting traditional financial institutions in competing with various firms. Today, the financial sector is taking blockchain seriously as it has the potential to disrupt the traditional banking business. The tamper-resistant, decentralised and unchangeable nature makes it the perfect choice for lowering costs and expediting everything from payments to asset trading, securities issuance, retail banking, and clearing and settlements.