Blockchain in modern banking
High transaction fees, delayed money transfers, risk of lack of personal information, are a few list of the challenges that customers face whilst relationship with the traditional banking system. What about the unclaimed digital ledger that can improve financial services by making transactions quicker, more inexpensive, and more inclusive for both banks and customers? The solution can be a blockchain.
Clearance and Settlement Systems
In traditional banking system international wire transfers are normally made using an international standard known as The Society for Worldwide Interbank Financial Transactions (SWIFT) network. There are two main disadvantages of SWIFT:
· High transaction fee.
The commission of transfers is quite high, which is caused by intermediary bank fees.
· Long waiting time.
SWIFT wire transfers normally take 1–5 business days.
Let me be more specific here. For instance, a customer from the US wants to send money to his friend’s Deutsche Bank account in Berlin, Germany. He visits the branch of JPMorgan Chase and provides all the necessary information for the wire transfer. In case Deutsche Bank and JPMorgan Chase don’t have a correspondent relationship with one another, they need to look for a bank that has a financial relationship with both of them and execute the transaction. In the worst-case scenario, several banks can be needed to perform a single transaction, which requires more time and money for the customer.
“Settlement in seconds, not days’’ — Ripple
Ripple provides services related to blockchain technology for enterprises and is considered an innovative solution to the SWIFT network to revolutionize and expedite cross-border transactions through the utilization of blockchain technology.
Wire transfer through Ripple works the following way: The Remitter and beneficiary don’t need to have a bank account in the same currency to transfer money (Which is a must with SWIFT), but the Remitter buys Ripple’s digital currency XRP with his local currency and the beneficiary can exchange XRP in his local currency as well. By this process, the transaction fee is extremely low compared with SWIFT and funds are transferred in minutes.
Ripple and similar enterprises are partnering with established banks to optimize the sector’s efficacy. They are seeking to decentralize systems on a more compact level than public blockchains by interconnecting financial institutions to the same ledger to amplify transaction efficiency.
