Uulala Is Setting A Blockchain Example Retail Banks Can Follow
Retail banks once introduced digital banking to the world, changing the way people interacted with their assets. As financial technology has evolved, however, banks have been hesitant to incorporate new developments like blockchain into their systems. Valid reasons, such as scalability concerns, strict banking regulations, entrenched processes and distrust of crypto assets have made for the banking community’s cautious relationship with the distributed ledger technology (DLT). There are, however, areas in which banks can begin to make use of blockchain to cut costs and increase transparency and transactional security.
A recent report by McKinsey & Company Financial Services has identified three main blockchain applications to retail banking: cross-border payments and remittances, KYC (know-your-client) practices, and credit risk assessments. In each case, blockchain has the potential to improve banking processes in speed, security, or transparency and in some cases, it can increase financial inclusion for the un- and under-banked.
Retail banks are interested but slow to adopt blockchain
According to a recent survey, 9 in 10 banking executives interviewed say that their bank is interested in blockchain applications, particularly when it comes to intra-bank transfers, remittances and cross-border payments.
Investment banks have been quicker to experiment with blockchain than have retail banks, looking to use blockchain to improve transfer speed and security and reduce processing costs. According to a report by Reuters, investment banks are currently investing around $50 million in a blockchain-based transaction settlement system.
Uulala’s financial services platform relies on blockchain technology to secure, process and record transactions via its utility token, the UULA. It stores and transfers normal (fiat) currency, making it compatible with other digital money apps and formal banks, and offers a good example of how to utilize the benefits of blockchain beyond cryptocurrency.
Secure digital identification and credit-risk assessments with blockchain KYC
Current strong anti-money laundering (AML) and know-your-client (KYC) best practices can be confusing and inconsistent, varying from country to country, by state, and even from bank to bank. This creates roadblocks for client onboarding and makes acquiring financial services especially difficult for immigrants, refugees or anyone without acceptable identification.
Uulala has partnered with KABN network, a blockchain-based digital identity firm, to create a unique identity for each account user, who completes KYC. Once that identity is established, each unique user begins generating their own immutable record of activities made through their account, allowing users to build a credit profile based on their own in-app transactions.
This blockchain-based KYC has far-reaching potential for retail banks to onboard new clients and performs more accurate risk assessments based on blockchain-tracked activities.
Streamlining remittances to reduce costs and improve access
In an era where banks, in the United States and worldwide, are closing branches at a rapid pace, citing “rising compliance costs and a more competitive landscape, among other factors,” blockchain may very well provide a cost-effective solution. De-risking practices are driving up remittance prices as proof of identity requirements become more stringent. If banks can leverage blockchain technology to secure digital identities and transfers, they can reduce the need for the long cross-checking process, increasing speed and transactional security and allowing banks to provide remittance services to customers at lower rates.
According to the World Bank’s Remittance Prices Worldwide database, banks remain the most expensive remittance channel, averaging 10.5% of the amount sent. In 2018, cross-border payments topped $600 billion in 2018, and fees reached nearly $40 billion. Remittances are a crucial contribution to global development, and reducing remittance fees is a major part of the World Bank’s financial inclusion goals. Applied to cross-border payments, “McKinsey estimates that blockchains … could save about $4 billion a year.”
Blockchain-secured transactions for secure finance
The McKinsey report points out that there needs to be a “seamless transition between fiat and digital assets” for blockchain and crypto assets to become widely used in retail banking. They suggest that central banks issue cryptographically secured fiat currency, but that may yet be a long way off.
Banks can look to Uulala’s financial services platform to see how all three suggested uses, cross-border payments/remittances, KYC, and risk-assessments, are being applied to facilitate economical, inclusive and international mobile finance. For retail banks, much is still in the proof-of-concept stage, but it is promising that blockchain applications are being explored throughout the retail banking sector.
