Blockchain is Reshaping the Banking Sector

The banking industry is strictly regulated in all jurisdictions, while banking sector representatives are distinguished by their conservative attitudes. But the wide dissemination of blockchain in the recent years, the overwhelming popularity of cryptocurrencies, and the ICO boom have contributed to the fact that the management of many banks and financial organizations no longer deny the potential of blockchain technology.

Large banks are increasingly conducting tests of decentralized asset technology and implementing blockchain in business processes. Banks continue to invest in a variety of projects and start-ups that are developing blockchain-based solutions.

According to a study conducted by the Accenture consulting company, which specializes in strategic planning, over half of all top managers admit that blockchain is going to play a key role in the success of financial companies in the near future. Accenture analysts have found that the world banking sector will save up to $20 billion by 2022 through implementing blockchain.

Blockchain is Panacea for FinTech Companies

Blockchain can solve a lot of problems continually faced by banks and financial organizations nowadays. Blockchain technology has many interesting characteristics that make it as attractive as Linux (thanks to its transparency) and Skype (because of the Voice over IP protocol) when they were first introduced.

Blockchain technology provides a high level of safety in storing and transmitting data, open and transparent network infrastructure, decentralization and low cost of operations. These impressive characteristics make blockchain a really promising and in-demand solution, even in the extremely conservative and restricted bank industry.

Most credit and financial institutions cannot carry out their work without a number of mediators, while their participation make the services of these institutions much more expensive. The implementation of blockchain will enable unnecessary mediators to be abandoned and provide customers and banks with cheaper services.

Banks are more active in embracing blockchain technology than other institutions

Which solutions are popular?

The main areas in which banks and other financial institutions will be able to implement blockchain technology are reducing costs and making bank-to-bank and international transfers faster. Large financial companies and independent financial analysts primarily view blockchain technology in the near future as a possible alternative to the SWIFT bank transfer system.

Another field of blockchain application in the banking industry is for the creation of a client identification system based on the distributed ledger technology. This is highly relevant because all credit organizations have to perform KYC when processing applications. Blockchain enables users to be identified on a single occasion, and this information is stored securely with access granted to other banks in the system.

Banking and financial activities directly relate to insuring deposits and loans. Even in developed countries most of these banking functions are often criticized for being unreliable and vulnerable. State regulators insure private bank deposits in traditional currencies. A distributed system based on ledger technology for loans and deposits is decentralized, and, since the deposits are not controlled by one organization, the system cannot go bankrupt.

Decentralization in the banking industry is a guarantee of stability and reliability

Another significant way that traditional insurance can be improved is by automating payment on insurance cases. If the system runs on smart contracts that are performed automatically and do not require long bureaucratic delays involving numerous managers, people will be able to receive payments immediately.

Banks are Actively Testing and Implementing the Technology

The Credit Data Processing Bureau, which is subordinate to the Polish Bank Association, records the credit histories of about 150 million Europeans.The British fintech company Billon Group, which received EUR 1 million of investments from the EU last year, created a unique blockchain-based solution for the bureau to process customer data.

The bureau’s management believes that the blockchain solution complies with the legal requirements and data protection regulation, while also meeting the needs of the industry and increasing its efficiency. The product that Billon Group offers is currently being tested and implemented by the eight major Polish banks, whose management is confident that blockchain will radically transform the way personal information is stored and transferred between banks and clients.

A representative of Billon Group said that the company has continued to develop and introduce blockchain-based solutions not only for data processing and storing, but also for operations involving fiat money. The project’s goal is to start a revolution in data management that will allow users to control their personal data in a confidential and secure way.

The largest Spanish banking group, also one of the leaders in the UK, Grupo Santander is a pioneer in the implementation of blockchain technology in the banking industry. Santander, controlled by Banco Group, has implemented a fully functioning One Pay FX payment system running on blockchain. The primary goal of the system is to optimize payments between Europe and South America with the use of distributed ledgers.

The Spanish bank has launched a service aimed at accelerating international banking transactions and reducing the cost involved in processing them. The service runs on Ripple blockchain, well-known thanks to its cooperation with American Express and Western Union, as well as other partners from the banking sector.

Banco Santander is also developing and testing a blockchain solution for carrying out shareholder voting related to the needs of major partners, including Northern Trust, Broadbridge and JPMorgan Chase.

JPMorgan Chase believes in the future of blockchain so much that they have assigned a separate enterprise, the Quorum division, to study and implement this technology. The bank is testing applications for financial processes and has already issued an annual deposit certificate with a floating rate based on a distributed registry.

The bank Goldman Sachs actively supports and studies distributed registry technology, and has already invested in the Circle cryptocurrency project. Bloomberg has reported that the bank intends to become the leader in the use of cryptocurrency among its Wall Street competitors, through the creation of its own cryptocurrency unit which will deal exclusively with digital currency trading operations.

It is not only large individual banks that study and implement blockchain; there are also groups of companies and bank associations which have been created specifically to do this. The Canadian Bank of Montreal, a large enterprise, has become another member of the association, along with a number of European banks. The association’s purpose is to develop a platform, called Batavia, to finance trade in cars and textile fibers. Other members of the Association are: the Spanish CaixaBank, Swiss UBS, German Commerzbank, East European Erste Group, among others.

What Awaits Us in the Near Future

This technology could have a tremendous impact on the procedures for concluding and confirming transactions, managing cash, and optimizing assets, as well as many other business processes which altogether account for billions of dollars in annual expenses for banks today.

The solutions developed by Universa are much faster and more reliable than most blockchain-based solutions on the market. We at Universa do our best to ensure that our technology is developed and implemented not only by companies in the IT sphere, but also in real sectors of the economy. Banking is one of the most promising spheres to benefit from the advantages of blockchain.

Blockchain makes it possible to reduce timeframes that have become accepted and established, such as the time from a loan application being approved to the funds actually being received, the time required for interbank or international transfers to be carried out, the time required for processing and confirming personal information, and so on.

Blockchain has passed the point of being a dreamy idea for the banking sector — it is already being implemented successfully, as we have detailed in the examples above. In the future, the implementation of blockchain in financial institutions will only increase.

Business will definitely benefit in the very near future from a considered, methodical and sustained approach to implementing blockchain in their processes. The technology will provide banks with efficiency, speed, security and reduced costs in many of their processes. This will directly result in both a price reduction and improvement in the quality of services for end-users.