The banking sector is all set to undergo a sea of change due to the blockchain technology that powers bitcoin transactions and offers many advantages compared to traditional banking. These include better accessibility, greater transparency, lower fees, and quicker sales. Financial biggies such as Visa, Standard Chartered, DBS, and ING are already paying attention to this technology. Blockchain can provide a universal distributed system that can be used by retail banks to drive efficiently and aggregate systems together allowing improved quality of service.
The discussion around blockchain has moved beyond the initial excitement of “blockchain will fix everything” to a more clear view. Sean Harrison, the retail banking analyst at Global data, says that the need of the hour is to focus on domains where the legal, regulatory, or political environments hinder the establishment of central control authority, crucial for commercial adoption of the blockchain. The most promising application of the blockchain technology is “smart contract,” that enforces the obligations of all parties in the contract without the added expenses of a middleman. An analysis of GlobalData’s Disruptor Tech Database states that blockchain could potentially transform the global retail banking system in areas like smart contracts, know your customer (KYC), payments, fraud reduction, and customer management.
The banking sector spends millions of dollars annually to keep up with KYC due to diligence regulations. Blockchain enables the independent verification of a client of one organization to be accessed by other organization so that the KYC process wouldn’t have to start over again. This, in turn, mitigates the cost burden on the banking sector. Many start-ups are building blockchain systems for customer identification that includes Cambridge blockchain, Trade, Credits, and Blockstack.
Harrison concludes that the fear of missing out on blockchain is palpable. The boat incumbent banking sector should make sure that they take the time to get the deployment right and create value that impacts the customers. Small-scale experiments will help shed light on any unconsidered issues with existing systems. The regulators across the globe in the financial sector are expected to scrutinize blockchain technologies thoroughly. However, blockchain is three to five years away from feasibility, initially because of the difficulty in establishing common standards. The strategic value of blockchain will alone be realized if cooperation is achieved at the scale.
