The banking industry must ask itself one question: is blockchain technology a useful addition to the sector? If it is, then it becomes the duty of leaders in this area to utilize it in the best possible way.
Blockchain has the potential to change the banking industry in the same way the Internet altered our consumption of media. It can solve a lot of problems because it is secure, transparent, and decentralized. Those features also mean that it can provide a cheaper way to do business.
The finance industry can apply the four critical applications of blockchain into a variety of different benefits for consumers and the economy. Because it is only a decade old, there may be other opportunities added to this list in the future.
Benefits of Using Blockchain in Banking
Blockchain has a chance to disrupt the entire banking sector and the financial services industry as a whole. It can alter the current face of this sector in the following ways.
1. It would start a switch to the use of digital currency.
Society has had a slow transition toward digital currency since the late 1990s. Because of the introduction of cryptocurrency, banks now have the option to use blockchain for private markets, equity, and derivatives. It is an effortless way to transfer money between locations, manage debt, or process derivatives. That makes the entire process more streamlined and automated so that costs can decrease.
2. It improves administrative functions.
Banking is more than the flow of money coming in or out. There are issues involving intellectual property, title records, and property ownership. Administrative functions for savings or checking accounts require significant human intervention without blockchain managing the process. Adopting this technology would create more transparency, reduce identity theft, and offer sharable systems that would help with Know Your Customer compliance.
3. It would work with securities to improve processes.
Securities trading would see improved speed and accuracy with the inclusion of blockchain in the banking industry. It could manage crowdfunding efforts, enter private markets, or create equity opportunities from illiquid assets. Instead of purchasing a painting worth several million dollars, the tokenization of the item could allow anyone to buy, sell, or trade fractional shares of it.
4. It improves the implementation of contracts.
According to Deltec Bank, Bahamas – “Smart contracts can simplify complex processes while increasing the speed of a financial transaction. It enables a transfer of accurate data only when approved conditions take place.”
The terms are visible to all parties in the transaction, reducing the chance of an error occurring. It could also improve escrow issues, digital rights, and wagers in ways that the traditional banking approach is unable to provide.
Although strict regulations are preventing the full adaptation of blockchain technology in the banking sector right now, the future is still up for grabs. The largest providers in the industry are already conducting tests to see what possible use cases could be beneficial.
As more opportunities develop, blockchain looks to become the next driving force for the banking industry.
Disclaimer: The author of this text, Robin Trehan, has an Undergraduate degree in economics, Masters in international business and finance and MBA in electronic business. Trehan is Senior VP at Deltec International www.deltecbank.com. The views, thoughts, and opinions expressed in this text are solely the views of the author, and not necessarily reflecting the views of Deltec International Group, its subsidiaries and/or employees.
About Deltec Bank
Headquartered in The Bahamas, Deltec is an independent financial services group that delivers bespoke solutions to meet clients’ unique needs. The Deltec group of companies includes Deltec Bank & Trust Limited, Deltec Fund Services Limited, and Deltec Investment Advisers Limited, Deltec Securities Ltd. and Long Cay Captive Management.