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What Is The Future Of Blockchain In The Banking Sector?

Blockchain Technology

Blockchain technology may be a relatively new invention, but it’s already starting to get introduced in many business avenues and sectors.

Automotive manufacturers such as BMW or GM are using blockchain to share the self-driving vehicle data. Many in the oil and gas industry rely on blockchain tech to do transactions and track production levels.

But what about the banking sector?

Blockchain seems to have a bright future in the banking sector. This technology can be a much-needed breath of fresh air in several areas of banking and might even have the potential to revolutionize them.

Read the article below and see for yourself what improvements blockchain can bring to the banking sector.

Blockchain Tech May Benefit Loan-Taking

Most banks or other lending institutions judge applicants based on a credit reporting system. Financial institutions need to know if you will be able to return the loaned money, even if you want a relatively small low interest personal loan.

Banks take all information about applicants from a group of three credit agencies – Experian, TransUnion, and Equifax.

Unfortunately, this approach to verifying applicants is not ideal. It’s quite common to have errors in your credit score and not get a loan. Even if lenders agree, the terms of a loan may still be unfavorable.

To make it worse, the system based on the three credit agencies is not necessarily safe. Equifax suffered a huge data breach in 2017, resulting in the credit information of over 140 million consumers being leaked.

Simplifying The Process Of Lending Money

Blockchain tech could greatly simplify the process of lending money. For example, blockchain lenders could use blockchain assets as collateral instead of relying on a faulty credit score.

Due to the secure nature of blockchain technology, it could be used to improve peer-to-peer lending. Quick and safe P2P loans could circumvent the extensive requirements of banks.

Blockchain Might Revolutionize International Transfers

When you want to transfer funds to someone in another country, you must use an international money transfer. These usually rely on a SWIFT network that allows secure and accurate communication between banks worldwide.

International money transfers might be reliable but, unfortunately, also have significant downsides.

Blockchain Improves Speed

International money transfers (IMTs) offer low speeds, as instructions for sending money often have to go through several intermediary banks before they finally arrive at the target bank.

On average, you can expect your international money transfer to take between 1 to 5 workdays. IMTs can be further delayed due to certain factors such as destination country, non-standard payment methods, or fraud prevention processes.

Blockchain works differently. There are no intermediaries during the transfer. Instead, Bank 1 sends the money to Bank 2. Also, the need for third-party verification is reduced. There’s almost no wait period – it’s usually measured in seconds.

Blockchain Lowers the Costs

International money transfers that use traditional systems such as Swift or Western Union tend to cost around 5% to 20% of the sum you’re sending.

This percentage might not seem like much until you realize that bigger transfers could generate fees worth millions of dollars.

The reason for such a high cost is that every bank charges its own fees. That means you’re covering the expenses for your outgoing and incoming banks and the intermediaries.

As mentioned above, blockchain transfers go directly from point A to point B. That makes any fees much lower and less numerous.

You can expect a fee range of 2-3% with blockchain transfers. That’s several times lower than the most expensive traditional IMTs.

Blockchain Boosts Accountability

Blockchain transactions are easily traceable and can be quickly verified. That is because the data generated by these transfers is unchangeable once verified.

As transactions are generated digitally, the risk of errors or intended fabrications is significantly reduced.

Blockchain technology can help banks prevent fraud or other misuse of assets.

That is because blockchain operations rely on two keys: the public key that every user has and a private, one-use key, available only to those participating in a transfer. When a cybercriminal gets access to a private key, they still won’t be able to make a transaction.

Blockchain Makes Stock Trading More Convenient

Selling or buying stocks is a time-consuming process. It can take three business days to receive the funds from your transaction.

The settlement period takes so long because many third parties such as brokers or the stock exchange are involved.

Additional regulatory processes need to be followed and further extend the time taken.

Blockchain does not need intermediaries or third-party regulators. Because of that, it can transfer assets almost instantaneously.

A Summary Of The Benefits For The Banking Industry

Blockchain technology can make a huge difference in banking. It has the potential to revolutionize several areas of this sector. Banks have a lot to gain from the correct application of this technology.

  • Blockchain lenders don’t have to rely on the problematic credit score method to determine the possibility of a loan.
  • International transfers using blockchain technology can be made in a fraction of the time it usually takes.
  • Blockchain international money transfer costs are also reduced due to the lack of intermediaries and lower fees in blockchain transactions.
  • Blockchain transactions are usually safer than traditional transfers.
  • The use of blockchain could also help banks avoid scams or frauds.
  • Finally, blockchain technology might improve the stock market. It has the potential to make trading more efficient and convenient. Trades could be easily settled in seconds instead of waiting three days to finish.

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