Ever since its inception in 2008, blockchain has changed the way we make transactions. We do not need an intermediary since all the transactions are peer-to-peer.

Blockchain is a ledger that operates without any central authority. This has had a profound impact on banks that benefit from blockchain technology. The decentralization brought about by blockchain has freed up banks to focus on other essential tasks instead of solely tracking payment transactions. This shift has impacted several aspects of banking, ranging from payments, settlement systems, and fundraising to securities management, loans, credit, and trade finance.

Blockchain by numbers

  • Between 2020-2026, the global IoT market is expected to grow at 45% from $258 mn to $2409 bn
  • Between 2017-2025, the global spending on blockchain security is expected to grow almost 10 times to $1572 bn.
  • The use of blockchain in banking and financial services market size worldwide is expected to grow from $0.28 billion in 2018 to $22.5 bn by 2026.

Benefits of blockchain technology

The distributed ledger technology known as blockchain stores all of the digital transactions carried out by its users in encrypted blocks of information. Blockchain-based business networks enable their users to log transactions and follow them through the system. The block’s recorded transactions cannot be changed or erased. 

The benefits of blockchain technology include: improving the security, dependability, transparency, and effectiveness of banking systems.

Data protection is improved by this technology, which makes it unchangeable and simple to verify. It can raise the bar for data security across all businesses by eradicating fraud and errors.

Platforms like Scallop have established themselves as “bank on a chain,” going above and beyond the traditional banking systems to offer new-age banking solutions using the blockchain technology.

Let’s delve into the ways banks benefit from blockchain technology:

Top ways banks benefit from blockchain technology

  1. Unbreakable Security: When it comes to user authentication, blockchain eliminates the need for cumbersome passwords. Instead, it seamlessly integrates blockchain security with biometrics, encrypting users’ unique identifiers like iris scans, fingerprints, or voice into a block in the blockchain.

Data protection is another area where blockchain shines. With its decentralized nature, cybercriminals face a daunting task of attacking the entire blockchain system rather than a single central node. Since data is distributed across multiple nodes, there is no single vulnerable point to target. Some forward-thinking banking institutions have already embraced blockchain for data storage and secure transactions, bolstering their defenses against unauthorized access.

Blockchain can also be a game-changer for secure communication within banking organizations. By leveraging the power of distributed ledgers, blockchain prevents data leakages and foils cyber espionage attempts. Metadata used for internal communications is dispersed across the blockchain, making it virtually impossible for hackers to gather it from a centralized source.

  1. Lightning-Fast Transactions: The management, approval, and logging of many banking activities and financial transactions today might take a long time. Some actions are also still carried out manually. This problem is readily resolved by fintech blockchain, which enables instantaneous authentication and verification. This streamlines banking procedures, such as speedy cross-border transfers, financial trading, KYC verification, etc., and lessens paperwork.
  2. Improved transparency: By increasing transaction transparency through the use of blockchain technology in banking, fraud may be easily identified and avoided. Banks are more visible to blockchain users because they use a shared digital ledger to record every transaction. As a result, banks can readily trace and confirm each transaction’s history. Blockchain banking eliminates all opportunities for fraud, money laundering, and other fictitious activities in this way.
  3. The Power of Decentralization: Decentralisation is a standout blockchain feature that is crucial for the financial industry. A more democratic interaction between individuals and institutions in the market results from decentralization. Buyers and sellers can speak with one another directly rather than depending on a central organization that manages every transaction. The effects include lower operational expenses, more inter-actor trust, and the impossibility of individual sellers or independent businesses controlling the market.
  4. Greater efficiency: Blockchain technology, specifically smart contracts, enables banks and financial institutions to automate insurance claims, reduce transaction costs, process money transfers, and undertake basic audits. These self-regulatory contracts eliminate manual involvement and support various business processes, reducing labor costs and enhancing efficiency.
  5. Data that’s gold: Blockchain records transactions in an immutable, foolproof manner, guaranteeing accuracy and consistency. Armed with top-notch data, banks can make better decisions, provide superior services, and manage risk like pros.
  6. The Rise of Digital Currencies: It’s time for banks to join the digital currency revolution. Embracing blockchain opens doors to offering services like trading and investment in cryptocurrencies. Not only does this unlock new revenue streams, but it also fosters innovation and inclusivity in finance.

Banks will also be able to clear and complete financial trades more quickly and securely with the help of cryptocurrencies.

In the future, banks will likewise try to make digital currency the norm.

  1. Compliance Made Easy: Blockchain simplifies regulatory hurdles with automated processes and inherent transparency. Banks can effortlessly demonstrate compliance, reduce risks, and safeguard customer data.

Blockchain in Finance: use cases

    1. Improved KYC: The use of fintech blockchains accelerates the verification process, removes errors and duplications, prevents repeated interactions with a variety of institutions, and provides for the prevention of fraud and forgeries. 
  • Direct Loans and Payments: Peer-to-peer or company-to-company direct payments are possible thanks to blockchain financial services, which do away with banks and processing centers as middlemen. Transactions become cheaper and quicker, and blockchain also guarantees transparency and traceability.
  • Global trade finance: Blockchain can greatly enhance and optimize supply chain management and global trade procedures when it is integrated into the financial system. The businesses involved in the global trading network can efficiently regulate their financial obligations to one another, verify the quality of their products, build greater mutual trust, and complete all necessary payments with the aid of smart contracts and blockchain-based IoT solutions. All of these tasks will take less time, money, and effort.

Final words

There is no denying that banks have a lot to gain from incorporating this revolutionary innovation. From increased security and cost savings to streamlining operations and developing new business models, financial institutions can leverage blockchain technology in a multitude of ways. As the industry continues down a path of adoption, we will likely see more and more banks experience disruptive change driven by blockchain with increased speed and scalability than other technologies have delivered before. By embracing this shift towards decentralization and recognizing the benefits that working within a blockchain-based system brings to primary banking operations, the possibilities are endless for how much progress our world’s financial system can make.