Blockchain technology is an open and distributed ledger that records transactions between two parties. A blockchain consists of individual data blocks that contain a sequence of related transactions that are linked in a specific order. Without a central authority or intermediary, all parties involved can share a digital ledger via a computer network, which means that transactions on the blockchain can be processed more quickly.
Advantages of blockchain for banking
Raising Funds
Raising liquidity through venture capital is a difficult undertaking these days. The typical scenario is as follows: Entrepreneurs create decks, have numerous meetings with partners, and have lengthy discussions about value and equity, all with the aim of trading their business for cash. Using blockchain technology can speed up the process by raising funds in a number of ways, such as: through Initial Exchange Offerings (IEO), Equity Token Offerings (ETO) and Security Token Offerings (STO). STO has become the most popular option due to legal its protection.
Faster Payment
Faster payments with cheaper processing fees are a sure way to improve customer satisfaction. BFSI institutions must therefore rely on new technologies by providing a decentralized payment channel. Banks can offer a higher quality of service, develop new products and ultimately compete with creative fintech startups with better security and lower payments, as well as implementing blockchain, startups will be able to reduce third party verification requirements and accelerate the processing of traditional banking contracts.
Settlement and Clearance System
Blockchain has the potential to allow banks to process transactions directly and track them better than traditional methods like SWIFT. A standard bank transfer takes a few days due to the way our financial system is set up. When it comes to transporting money throughout the world, many banks all over the world face logistical hurdles. A simple transfer must go through a complex chain of intermediaries such as escrow services before reaching its destination. Bank accounts also need to be reconciled across the global financial system, which is made up of a vast network of funds, asset managers, distributors, and other businesses.
Trade Finance
Another area where blockchain is expected to have a significant impact is in trade finance. All financial activities related to international trade and commerce are referred to as trade finance. Did you know that invoices, letters of credit and invoices are still used in many trade financial transactions today? Many order management systems allow you to do this job online, but it is time consuming. Blockchain can streamline the trading process by digitizing and eliminating the tedious manual.
Loans and Credits
Traditional banking organizations use a credit reporting system to write loans. We look to the future of peer-to-peer lending as well as faster and safer credit processes in general, right through to complex terminated loans that, thanks to blockchain, can be reminiscent of syndicated loan or mortgage structures. Banks processing loan applications look at things like creditworthiness, home ownership status, and debt-to-income ratio to assess risk. You will need your credit report from specialist credit reporting agencies to collect all of this information.
How will blockchain transform the future of banking sector
Before blockchain becomes a mainstream technology in banking, it must meet a number of criteria. It is important to first build the necessary infrastructure in order to operate a global network with suitable solutions. Only when blockchain is widespread will it be able to disrupt the industry. The investment will pay off well. When the blockchain is fully implemented, it should enable banks to process payments faster and more correctly, while reducing transaction costs.
