Blockchain and Innovation in Banking Services

Banks will have to invest in innovation, not only from the point of view of technology but also to adapt or recreate the way in which they provide their services. Perhaps redefine their operations and create new options in order to integrate naturally into these systems, without sacrificing the security to which they must commit.

This challenge will consist not only in masking their services in new technology solutions but also in evolving them into ways that can compete with the alternatives that technological development is demanding.

Blockchain’s technology has been installed as the current basis for innovation within the fintech industry. However, spreading this innovative impulse within the banking services ecosystem requires an understanding of its nature.

Banks know that they must compete to maintain and grow their business. They also know that digital transformation is part of an ongoing battle in that competition. And the interest in incorporating new technologies that add value to their services is very attractive. At the same time, Blockchain is born from the interest of avoiding the traditional system of centralized economic transactions audited by certain specific authorities, a traditional role of these institutions.

However, this does not mean that Blockchain has no place in the world of financial services or, in particular, banking services. On the contrary, they seem to be at the forefront of development initiatives based on new technologies. This is because the spectrum of their services is much broader than account management. In addition, banks exchange information with a universe of other companies and industries as part of many of their services. Examples of these are logistics, insurance, international or distributed payment systems, asset traceability, distributed information, among others. For all these examples, there are already projects of solutions based on Blockchain.

It is in the optimization of this information exchange, one of the areas where Blockchain can make a difference. Although these models, in general, were conceived to operate with centralized information (based on the criterion of sole authority), increasing agility and security in the exchange processes ( without mentioning the possibilities of automation provided by features such as intelligent contracts) is in itself an improvement that will result in lower operating costs. But it is not only a question of reducing market frictions (the number of intermediaries, the speed of operations and the associated costs) but also of increasing the current level of security. The use of a distributed data repository and the technology designed for its validation provides greater reliability over the recorded information and reduces the chances of missing information.

Another area in which Blockchain is able to provide benefits is through the renewal of existing services or the generation of new opportunities. There are several alternatives to traditional financial services that have begun to be explored through technological innovation. However, this does not mean that banks cannot learn, and perhaps even incorporate them.

Globally, there is a large population that for different reasons operates from the informal economy. Among other factors, these groups see in new technologies the opportunity to operate with lower costs and requirements. Bringing solutions that integrate decentralized transaction systems with traditional services will allow banks to reach those groups that are still marginal.

The possibility of having a shared repository that maintains the operations history of an individual will also allow, in these cases, to provide more precise information to credit evaluation systems in order to incorporate those that do not have a previous history or that keep most of the volume of their operations out of the formal circuit.

Technological innovation also generates new markets that rely on different commercial circuits in which banks are not necessarily considered the only alternative. With the appearance of cryptocurrencies, the wide range of services offered through the Internet of Things will explore the possibility of not relying on traditional transactional flows until today. Facebook has even recently announced the creation of an internal division to study the use of cryptocurrencies. Faced with this, banks will have to find a way to be convenient and capable of integrating with emerging technologies.