In our past articles, we mentioned the effects of blockchain technology in various fields, like education, healthcare, and so on. Now, we would like to think about the relationship between blockchain technology and banking industry because the technology is enhancing almost every field, and banking industry is one of the significant fields. Let’s learn the effects of blockchain technology in banking industry together!
What is blockchain technology?
Before answering the question that is how blockchain technology affects banking industry, we should explain the technology properly. Blockchain technology can be identified as a kind of record book basically. In other words, the technology is a database system that provides encrypted transaction tracking made up of blocks and stored in blocks. There is no centralized authority in the technology, so the logic of decentralization is active for blockchain technology.
Almost every field tries to adopt blockchain technology because it has an enduring structure that can avoid cyber-attacks. The main usage areas of the technology are energy sector, smart contracts, investment tools, money transfers, healthcare organizations, financial institutions, and banks. Now, we would like to present the relationship between blockchain technology and banking industry and the use cases of the technology in the industry.
The benefits of blockchain technology for banking
Firstly, we can say that blockchain technology provides faster payments and a more trustable structure in banking industry. In addition to these, we can mention various benefits of the technology in banking industry. Let’s analyze the benefits!
As we mentioned above, blockchain technology provides banks with the chance of faster payments and other processes. Almost every person wants to finish her/his financial transactions in a quick and good way, so the circumstance requires a decentralized system. We know that every situation is faster if there is not a central authority, and blockchain technology adopts a decentralized structure. Hence, the circumstance can be utilized in banking industry, and the traditional banking system can be improved. Shortly, banking, financial services, and insurance institutions (BFSI) can use blockchain technology for faster payment, the development of new products, high quality of service, reducing the requirement for third-party verification, and providing better security.
Today, raising cash is considered via venture capital, and the situation makes the process difficult. If blockchain technology is used in banking industry, the problem can be solved. The technology includes Initial Exchange Offerings (IEOs), Equity Token Offerings (ETOs), and Security Token Offerings (STOs), and the ways can provide companies and entrepreneurs with a quick process for raising funds.
At the present time, various mediators, like banks and financial institutions, consider trade finance that is providing companies with receiving a cash payment based on accounts receivables in case of factoring. In trade finance, letters of credit, bills, and invoices are utilized, and the process can be long and boring. On the other hand, blockchain technology can improve trade finance for companies, so banks can consider the usage of the technology for well-developed trade finance.
Transportation of Information
A lot of financial institutions and banks are based on paper. In other words, posting and faxing are utilized for financial processes, and credit letters are the main example of the circumstance. The circumstance is considered by banks because every bank requires a database for sharing the same information and keeping the information secure, and the paper-based process is thought as the right decision. However, the thought is not true because the transportation process and producing lots of papers damage the Earth and support the climate crisis. Furthermore, the circumstance makes the system of banks complicated. For solving the situation, banks can consider blockchain technology which can increase the efficiency of information transportation.
We know that every bank needs the credentials of a person for giving money to the person. In other words, for proper processes in banks, there must be identity verification, so banks try to create a suitable system in which users’ credentials are recorded and kept. For avoiding stolen identities and creating a safe environment, banks can utilize blockchain technology because it is a secure technology in which the credentials of bank users can be recorded and kept in a good and simple way.
As can be understood from the above mentioning, blockchain technology can improve and change banking industry, like the other fields. Therefore, various banks are dealing with the technology for making users happy.