India is the world’s largest consumer market and the market potential of the country has attracted several international investors who readily investing their time and money into the country’s growing market. As such both, the development of banking and technology are very closely associated and over time the innovations made in the field of technology have changed banking drastically.
And the recent and most talked about the change that is slowly impacting the country’s and the world’s banking sector is the introduction of Blockchain Technology. For those who don’t know, Blockchain’s are nothing but shared distributed ledger that stores business transactions to a permanent unbreakable chain that can be viewed by the parties in a transaction.
This small technology has the potential to disrupt the ﬁnancial business applications since it offers a permanent and tamper-proof recording of transactions in a distributed network. In today’s market, this technology is widely used in digital currency, trade finance, KYC and cross-border remittances, etc.
The advantage which Blockchain offers to the banking sector is that all the financial transactions will no longer require any central authority and will be immediately validated, cleared, and settled. This tech promises a major change for capital markets and other financial services and is set to disrupt the banking industry in the coming years.
Most of the banks around the world have already started to initiate projects related to blockchain and some are even experimenting with implementing this technology in their financial transactions. The latest and greatest example explaining the potential of Blockchain is cryptocurrency. These digital coins help us to overcome identity theft as users have control over their transactions and it protects the merchant from the risk of fraud as the transactions cannot be reversed once executed and they do not possess any personal information with them. Money can be sent anywhere in the world at any given time without the involvement of central authorities and the transactions are immediately verified and are visible to all participants.
Many central banks across the globe have started to develop a digital version of their fiat currency to reap the benefits of blockchain. The Central bank of Canada has developed CADcoin which is a digital version of the Canadian Dollar, Dutch central bank has started its own DNB coin virtual currency.
In India, top banks India such as ICICI Bank, Yes Bank, Kotak Mahindra Bank, and Axis Bank have already recognized the immense potential in Blockchain technology and they believe that blockchain technology is going to revolutionize the banking industry. As we know, ICICI bank has successfully managed to execute its pilot project with Dubai’s largest bank — Emirates NBD in cross-border remittances. Axis Bank Ltd. and Kotak Mahindra Bank Ltd are also experimenting with Blockchain technology in association with global financial institutions and both the banks are working in cross-border remittance and the trade finance industry.
The State Bank of India (SBI) became the first Indian bank to establish a financial Blockchain consortium of ten commercial banks, IBM, Microsoft, Skylark, and KPMG back in 2017. and the first project by the consortium is successful in enabling its members to share KYC, AML, and CTF details over a Blockchain network.
Benefits of Blockchain Technology
- Reduced Transaction Costs: Blockchain technology allows marketing participants to directly access dematerialized assets and stored information. It saves the cost of reconciliation for banks and prevents losses arising due to fraud. Blockchain ensures that payment and settlement take place simultaneously which leads to a reduced cost in the management of funds by the treasury. Blockchain applied in cross-border remittances can help users to get the best exchange rates from foreign- exchange marketplace due to near- real-time processing of transactions.
- Efficiency: Blockchain improves the speed of processing of transactions as it reduces the time of decision-making across the organizations with minimal human intervention. It reduces the requirement of duplicate recordkeeping, reduces reconciliations, minimizes errors and frauds leading to faster payment and settlement. In case of any unfortunate event like war, flood, earthquake, etc. at one location, the remaining participants in blockchain can approve a transaction.
- Eliminates intermediaries: Trust is a foundation of business. Blockchain which is based on cryptography replaces third-party intermediaries as the keeper of trust. It will reduce the overheads costs when parties transact directly with each other without the need for central authority or middleman.
- Transparency: Blockchain helps in maintaining irreversible records of transaction events in sequential order which brings more transparency in business transactions. It provides the details of the origin of messages in the area of payment which leads to transparency and reduction in risks.