All over the world, banks are adopting or testing Blockchain-based systems. Banking experts believe that these institutions are leveraging on the many proven benefits of DLT that are already transforming other industries such as gaming, real estate, e-commerce, insurance, just to mention but a few.
The Trend Started In 2008
The financial crisis of 2008 led to increased regulation from government institutions to encourage better practices in financial practices. Following the structural adjustments that followed, banks started adopting Blockchain for various purposes.
The first use entails improving customer experience. This is because DLT platform application in the realm of banking can solve common problems such as time wastage, inflated costs, and unnecessary bureaucracy in institutions. Some concrete examples include adopting DLT to process creditworthiness of borrowers, to manage and support mobile-based money solutions through DApps, and even to develop platforms for inter-bank or inter-sectoral cooperation.
Improving Customer Services And Adhering To The Law
Blockchain technology is unique, efficient, transparent, and reliable when it comes to managing banking operations. Banks that run on DLT platforms can easily offer cutting-edge services such as easier registration of clients to adhere to the industry-set Know Your Clients (KYC) standards and many other additional services such as the MoneyTap app services that the Japan Consortium Banking group offers to over 70% of Japan banks’ clients. These solutions can not only make banking easier from the clients’ end but also enhance internet money-based transactions.
Blockchain-Based Platforms Provide Interactive Inter-Banking Solutions
Following the 2008 crisis, there has been a policy implementation that set a threshold for core Tier 1 capital requirements. This is meant for ensuring that Banks have the minimum capital to cushion them from shocks that as the credit cash crunch that spiraled out of control in the 2008 financial crisis.
In this regard, banks are applying DLT to come up with solutions for boosting capital and also developing multi-bank initiatives that enable members to share platforms in areas such as inter-bank payment solutions. There is also the aspect of the elimination of clearing that used to charge fees to banks, this has led the institutions to save more costs and use them to improve operational capital.
There is also the aspect of security that DLT-based banking solutions proffer to users not only in intra-banking services but also in inter-banking. For instance, people can send money between each other on secure networks that cannot be intercepted by third parties.
Blockchain Technology Is Eliminating Money Laundering In Banking
Money laundering remains to be the biggest threat to national and international security since it disguises illegal activities as legitimate. DLT platforms can be customized to simplify and authenticate KYC and anti-money laundering (AML) procedures. The technology is expected to proffer transparency and openness in banking transactions to eradicate the vice. Further, the uses of smart contracts in Blockchain ecosystems can be optimized or tailored in a way that only verifies transactions that meet a minimum threshold to be performed by a bank.
Some of the DLT technologies that most banks are preferring include Ethereum due to its smart contract systems, Ripple since it is centralized, Stellar since it offers privacy, and a few other Blockchain platforms.