Handling financial transactions also comes with its own risks, such as online fraud, that can have serious financial implications on day-to-day bank operations. The good news is, blockchain technology could turn the traditional banking industry on its head by making banking services seamless, transparent and more secure for customers. So far,
33% of commercial banks are expected to adopt blockchain technology in 2019.
Blockchain technology is set to disrupt the banking industry in a number of ways:
1. Reduced Payment Costs
Technological innovations have enabled more people to work online and even receive payments for their work-from-home jobs through their smartphones or computers. With banks adopting blockchain technology, the cost of sending payments is expected to reduce drastically. This will help eliminate the verification requirements from third parties during bank transfers. The processing time for payments will also be reduced, and the additional fees that banks charge eliminated. For instance, Bitcoin and Ethereum can take 30 minutes or a few hours to settle a customer’s financial transaction compared to bank transfers that can take up to three days.
2. Direct Clearance and Settlement of Transactions
Traditional banks use a centralized SWIFT protocol to transfer money between two parties, with the actual cash being processed by intermediaries. The processing of SWIFT payments can take approximately 30 minutes if both parties screen and approve the transaction. However, if the corresponding banks don’t reconcile their ledgers in time, the transaction fails. With blockchain technology, the clearance and settlement of transactions are instant. Blockchain allows banks to track and keep their decentralized ledgers in their public network rather than relying on custodial services and correspondent banks. According to Goldman Sachs, banks would save at least $6 billion in settlement fees and related costs annually by adopting blockchain technology.
3. Lower Security Exchange Fees
The purchasing and selling of securities in the current financial market are done through brokers, central security depositories, custodian banks, and clearing houses before processing is complete. The manual process is tedious, sometimes inaccurate and prone to deception as it passes through several parties during the exchange. Blockchain technology will help eliminate intermediaries and brokers who are present during the transfer of stocks and assets, saving $17 to $24 billion in processing costs. Through blockchain technology, clients can transfer their securities and assets via cryptographic digital tokens like Bitcoin and Ethereum much faster and with lower exchange fees. Big banks such as JP Morgan and CitiBank, who are large custodians of assets worth over $15 trillion, are already adopting blockchain technology to lower security exchange fees.
Blockchain technology has immense potential in revolutionizing the banking and finance industry. Many financial institutions are expected to adopt it in 2019 and beyond to enjoy the benefits it offers.