Introduction:
Over the years, traditional banking has played an essential role in the banking sector. It was difficult to use the conventional banking style, which led to challenges such as
Time-consuming processes.
Manual paperwork.
High transactional costs.
Security concerns.
Limited operating hours.
Lack of transparency.
Remember the days we used to stand a whole day at the bank for just opening an account or even depositing money into the bank? It made people restless, standing the whole day at the bank and sometimes returning without completing tasks.
But in the past few years, the way of banking has played different roles in people’s lives, such as opening accounts instantly online while sitting at home; how efficient this is.
Fast forward to today, the financing sector will change drastically and bring lots of immense changes in the field of business and other industries, too. Blockchain has transformed the way banking sector.
In India, government-related blockchain projects are estimated to drive USD 5.1 billion of GDP revenue in 2032.
1. The Rapid Adoption of Blockchain Technology by Banks
As of 2023, 382 banks have adopted blockchain. However, global adoption is needed to reap the full benefits of blockchain technology in the banking industry.
Blockchain holds immense potential to revolutionize the banking sector, prompting a widespread desire to integrate this technology for its numerous benefits. In response to the potential transformative impact and to overcome associated challenges, the banking sector has made the strategic decision to adopt blockchain.
Improved transaction speed: Enables faster peer-to-peer transfers that settle almost instantly, reducing costs by eliminating third parties.
Better record keeping: Blockchain ledgers enable improved transparency, auditability, and data integrity for easier regulatory and recording data.
Use of smart contracts: Self-executing agreements stored on a blockchain can automate manual processes like loan approvals. This reduces operational costs and risks. It also gives customers more control over their accounts.
Fraud reduction: Blockchain’s decentralized nature and enhanced security provide greater stability against hacking & system failures and reduce cybersecurity risks, which results in building trust.
2. Future of Banking with the Integration of Blockchain
Blockchain is transforming into a new era of innovation in banking and finance. This provides opportunities for no intermediaries, automated processes via smart contracts, cost reductions, and greater traceability and transparency. Blockchain is expected to fundamentally revolutionize finance, making it more efficient, accessible, and innovative.
Central bank digital currencies (CBDCs): CBDCs are proposed national cryptocurrencies issued and regulated by central banks to improve financial services.
Asset-based digital tokens (Tokenization): Digital tokens are tradable and linked to real assets that can enhance market efficiency and liquidity and reduce costs.
Automated processes: Smart contracts automate observance checks for trade finance, KYC, AML, etc. This reduces operational costs and improves efficiency.
24/7 operations: It enables 24/7 processing and settlements, eliminating intermediaries. Banks can offer real-time banking services.
Innovation: Enables blockchain to innovate with new decentralized finance (DeFi) applications to build open, permissionless financial services beyond traditional finance.
Improved customer service: Customers will benefit from faster payments, more transparency, control over their accounts, and expanded access.
Conclusion
Blockchain is a disruptive technology that can create value for the financial industry by enabling faster, more secure, and more transparency. The adoption of blockchain unlocks innovation in various areas like digital currencies, smart contracts, etc. While adoption is still growing, blockchain is likely to fundamentally change banking operations, security, and business in the years ahead. Its transformative impact will lead to a more open and innovative financial system for better industry performance.
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