Blockchain Opportunities For Banks
Blockchain is digital information that is stored in a public database. It usually consists of cryptocurrencies and provides added security for a variety of financial transactions - actually becoming one of the most widely used technologies in fintech. With blockchain, banks can store information about transactions such as the date, time and dollar amount of a recent purchase.
Blockchain opportunities for banks
The blocks store information about the parties that are involved in a transaction as well. For example, blockchain will record a transaction without any identifying information and will use a digital signature instead.
The information stored through blockchain will also store information that distinguishes it from other data. It will store a unique code called a hash which enables it to classify each unit of information.
With blockchain, there have been considerable changes in fintech and in many oher industries in recent years. Blockchain allows untrusted parties to agree on the state of a database and not have to rely on a middleman for a transaction.
With the decentralization ledger for payments, blockchain can provide faster payments and lower fees than banks. Blockchain affects clearance and settlement systems where distributed ledgers can reduce the costs of operations and bring more real-time transactions between financial institutions.
Fundraising has been changed by providing Initial Coin Offerings. A new model of financing can unbundle access to capital from capital raising services and firms. Securities such as stocks, bonds, and alternative assets are placed on public blockchains. This creates more efficient capital markets.
Implementing things such as smart contacts within a platform, banks can reduce the interactions with counterparties and intermediaries. They can also lower the cost of maintaining and executing contracts as well.
Banks are now able to avoid middlemen which can allow them to ensure that customers complete transactions at a quicker pace. This will result in customers and banks able to complete and process more transactions.
Modern blockchain can store any type of data and allow it to be accessed following predefined rules and regulations. The technology known as smart contracts automatically verifies and enforces contracts.
Banks can benefit from blockchain with the use of digital currencies. They are now able to accept digital currency to complete a variety of transactions. With cryptocurrency, banks will be able to more easily clear and settle financial trades faster and more securely.
There are many benefits associated with blockchain technology. These benefits have allowed banks, financial institutions and fintech companies to provide better service as well as offer more security to customers.
Bitcoin and the blockchain protocol have achieved a system that enables the exchange of value between two parties unknown to each other in a swift and effective way, without the need for intermediaries. Despite its immaturity and the many challenges it involves, the financial industry has set its sights on this technology, that can offer a great opportunity for generating new banking services that are more agile, less expensive and more favorable for its customers.
Macarena Peña, Business Development manager of BBVA's New Digital Businesses area, is responsible for seeking the opportunities related to blockchain. Peña explains in this interview how this technology works and the challenges it poses for the banking sector. In her opinion, there are only two things preventing banks from beginning to offer Bitcoin services: regulation and real customer demand.
Strictly speaking, the term blockchain refers to the unchanging ledger that contains the full history of all the transactions executed in the network with a timestamp. Any person at any time can access and check this ledger, knowing that the information it contains is updated and consistent with the other nodes in the network, despite the fact that it is a decentralized network.
If there were a Bitcoin regulation requiring users and participants to comply with current regulations, and real customer demand, banks would have no trouble in providing the Bitcoin service to our customers.
The Bank for International Settlements recently published a study on the impact of blockchain and the distributed ledgers on the financial industry and concluded that it would be possible to reduce the intermediary role played by banks, clearing houses and central banks.
In this regard, BBVA has been working for some time to be one of the most innovative banks, developing pilots and proofs of concept, and approaching the ecosystem through investments (such as Coinbase), agreements (DLG), talks (Digital Currency Summit 2015) or contests (Open Talent or Innova Challenge).
One of the first most immediate impacts would be reduced costs. Today, each bank has a series of servers deployed where the information they contain is duplicated with that of other many banks and institutions. To update the information contained in a database of one bank with that of another, we use messaging processes. If many of the banks used a shared ledger with that duplicate information, significant savings would be achieved, as well as agility in some of the processes that now require validation.
DLG is an initiative among banks for coordinating efforts in the research and development of the distributed ledgers in our industry. The fact that it has over 40 global banks sitting at the same table shows its potential. If we want to make the most of this technology to change some of our processes, the network effect needs to be developed. It makes little sense having a fax machine for sending information if nobody else is connected to it. And to be able to communicate, we have to define those rules that make interoperability easier.
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Credit cards, mobile payments, remote check deposit, online bill pay, direct deposit, and automated teller machines have transformed the financial landscape. They have generally been a benefit to both banks and consumers.
Each of these innovations share an important element: each began with a social, financial, or economic need to be addressed. Technology was then developed for the express purpose of addressing the specific need. These innovations have served to foster accessibility to the banking system, increase the convenience of consumer engagement in banking transactions, and enhance the operational efficiencies of banks and the banking industry.
Now, with the arrival of the metaverse, blockchain technology will become more significant, as cryptocurrencies and non-fungible tokens (NFTs) will enable purchases and value storage in virtual reality.
For years, companies have worked to ease the buying, selling, and trading of stocks, and now new blockchain-focused startups are looking to automate and secure the process more efficiently than any past solution.
While the application of blockchain tech would not completely remove these difficulties, it would make it easier to identify factual information, provide verifiable transaction data, and dismiss claims that are without merit.
Alternative lending using blockchain technology offers a cheaper, more efficient, and more secure way of making personal loans available to a broader pool of consumers. With a cryptographically secure, decentralized registry of historical payments, consumers could apply for loans based on a global credit score.
BankSocial is an Ethereum-based platform that claims to be the first blockchain-based P2P lending platform. It uses a social consensus lending pool and pays its members to hold tokens that are used for funding loans. Members stake tokens in exchange for some of the interest collected from each loan.
Most blockchain applications in the insurance industry today are focused on improving operational efficiency. Rather than developing new products, insurance companies are looking at ways blockchain can drive down costs, increase speed to market, and provide better customer experiences.
Blockchains could be used to track parts in a supply chain and weed out those that are counterfeit. The tech also has major implications for automotive recalls, which affected roughly 32M vehicles in 2020. With a record of where parts have gone, from the supplier to the individual vehicle, blockchain could enable targeted recalls.
In another example, Daimler has partnered with Singapore-based Ocean Protocol, a decentralized data exchange, to explore how blockchain could be used to share supply chain data among its manufacturing hubs and partners.
Russia-based S7 Airlines deploys a private, Ethereum-based blockchain that uses smart contracts to reduce settlement times between the airline and its agents from 14 days to 15 seconds. In 2019, the airline announced it had reached $1M in monthly ticket sales processed on its blockchain.
Sixty-one percent of aerospace and defense companies are working with blockchain or distributed ledger solutions, according to Accenture. Blockchain technology has the potential to streamline parts inventory and authentication, personnel certification tracking, and more.
Meanwhile, to comply with NATO standards, France-based aerospace and defense contractor Thales Group is deploying blockchain at one of its new manufacturing sites to trace the naval equipment and other parts fabricated at the facility.
Construction is a highly regulated industry that employs a wide variety of tradespeople to take on projects that are often very complex. Validating their identities, their quality of work, and their dependability can be difficult and time-consuming. A blockchain-based ecosystem could help solve this challenge by making it simpler for general contractors to verify identities and track progress across multiple teams.