How Blockchain Could Transform Banking and Financial Services?

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Blockchain is revolutionizing business frameworks across several industries. It is supporting businesses to transition from their legacy systems and reimagine their processes. The global market size of blockchain technology is estimated to grow at a CAGR of 67.3% from 2020 to 2025.

The banking and financial services industry is leading the adoption of the technology. Blockchain technology has the potential to transform the way we invest and lend. It will bring convenience and transparency to the core of financial services.

The technology minimizes friction and operational expenses while offering precision, security, and traceability for faster processing of financial transactions. These advantages are already making headlines, while experts see a potential of an estimated 30% annual savings to organizations in the financial markets.

Blockchain — The Solution

Legacy systems constantly face challenges related to complicated onboarding procedures, slow reconciliation, and untimely settlements. For banks and financial institutions, it means additional costs while customer satisfaction rates keep dropping constantly.

Blockchain technology has the potential to transform traditional banking and improve customer experience throughout their journey. A blockchain uses Distributed Ledger Technology (DLT) to store all data and information exchanges on the network. It makes the system transparent by providing access to all information on the ledger to all stakeholders. The data is immutable, with no possibility of altering or hacking the network, making it secure for financial transactions.

These can dramatically impact the banking experience of your customers as they see you as more reliable and trust you with their crucial information. Here is how you can expect it to disrupt the banking industry to improve customer experience.

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4 Ways Blockchain Will Transform Banking

1. Simplify KYC process: KYC is a time-consuming and expensive yet mandatory process for financial institutions. With approximately 10% of the banking workforce focusing on financial-crime-related activities, it is a resource-intensive procedure. Blockchain could change the scenario by automatically refreshing and updating customer data on bank systems. While cutting down costs for banks, the transition will also reduce wait time for customers. It will speed up onboarding procedures and uncomplicate periodic KYC updates, enhancing the customer experience with the bank.
2. Reduce paperwork: Accounting, bookkeeping, and audit are important processes in the financial industry. Reimagining these processes through digital intervention is difficult owing to the associated strict regulatory requirements. Though manual processes are designed around data integrity, they are time-consuming and not completely error-free. Smart contracts on a blockchain will help drastically reduce time spent on paperwork in turn save money for banks as well. Reducing human intervention cuts down the chance for errors. The verification of financial statements is done automatically and the Smart contract is enforced if it satisfies the predefined rules. Decentralization allows the task to be completed more efficiently and makes the information available for all concerned parties on a blockchain network. Speeding up the claim and verification process for loans or insurance will deliver a better CX.
3. Speed-up payments: Transfer of money from one place to another is often a time-consuming and costly process if done traditionally, says the report by Credit Suisse. Intermediaries make the process tedious, expensive, and not-so-secure against cyber attacks. By implementing blockchain in settlement processes, third-party intervention would disappear, benefitting both banks as well as customers. For the payments ecosystem, it will mean faster settlement with reduced costs. It even has the potential to settle cross-border payments in a day or just in a few hours. Banks can also look forward to 24/7 international fund transfers as the technology evolves.
4. Enhance security: The banking industry is susceptible to fraud and with digital transactions, the risk is greater. Hacking and Distributed Denial of Service (DDoS) attacks severely impact the bank’s business and reputation. Blockchain strengthens the security of financial institutions as hackers rely on breaking into one data hub to grab valuable information. With blockchain-driven financial systems, there is no singular point of failure. The technology protects critical financial data against attacks and makes it easier to identify hackers using encryption IDs. Customers get exclusive access and viewership rights over their financial information, like account balances, loan outstanding, investment portfolio, etc.

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The Future is Blockchain-ed

Blockchain can be pivotal in the advancement of the financial services industry. It is already revolutionizing financial activities like stock trading, payment clearing, and settling transactions. The technology has the potential to make banking fairer with greater capital efficiency.

Deloitte’s 2020 Global Blockchain Survey shows around 55% of organizations view adopting blockchain as a top priority. Though scalability, interoperability, and energy consumption are presently the roadblocks to the undisputed adoption of blockchain, they may soon be overcome.

The transformative potential of blockchain technology will help the banking and financial services industry drive operational efficiency. Improved processes and upgraded features of financial offerings will enhance customer experience manifolds.