Traditional banking & finance processes have evolved a lot with the emergence of new-age technologies. Blockchain is a powerful decentralized technology that is revolutionizing the banking & finance sector. Many financial institutions in India are investing in blockchain technology to gain long-term profits. Blockchain has helped in data transfer between banks and respected parties by providing a decentralized ledger. There is no central controlling authority in blockchain technology but it doesn’t compromise its security. Read on to know more about the use of blockchain technology in banking & finance.
What exactly is Blockchain?
Blockchain is a special type of database that stores data in blocks and then links (chains) them together. The information then can be accessed by everyone but can’t be altered. The data/information is stored in chronological order in the blockchain. It forms a secure medium for storing transactional data & cryptocurrency processes. Let us see how blockchain assists in the transaction process.
Below are the steps of how blockchain completes & stores a transaction:
- Upon entering a new transaction in the blockchain, peers of systems scattered over various geographic locations start verifying the transaction.
- Once the verification of data is successful, it is transferred to a block. A block has finite storage & it clusters various transactions together.
- If the space of a block is full, the information is stored in the next block. Various blocks are then chained together forming a ‘blockchain’. The coupling of blocks will create a long ledger that is permanent.
- Upon successful coupling of the transaction into blockchain, your transaction will be completed. You can backtrack your transactional data whenever needed.
Use Cases of Blockchain in banking & Finance
Various applications of blockchain in banking & finance are as follows:
Blockchain has reduced the charge per transaction in cross border payments. Banks are using blockchain to make cross border payments faster & secure. Besides cost optimization, it also helps in increasing transparency.
- Blockchain has enhanced the contract system of financial institutions. Besides transactional data, blockchain can store any kind of digital information. It is being used by the banks to create a smart contract system between parties where the money will be released upon meeting the contract criterion.
- Apart from maintenance costs, banks are using blockchain to lower the security budget too.
- The processes involved in bookkeeping can be paced with the help of blockchain.
- Money laundering has been lowered in banks with the adoption of blockchain technology. It has also helped banks to comply with the regulations.
- Blockchain is popularly being used nowadays for cryptocurrency processes. It creates a safe platform for cryptocurrency transactions that is immutable & decentralized.
- Dispute resolution in banks is enhanced with the help of increased transparency (history of transactions) provided by the blockchain.
Blockchain in Fintech
Fintech services have disrupted traditional banking processes. Fintech has aided in providing financial services to people via technology. Some of the prominent applications of blockchain in the fintech industry are as follows:
- Blockchain assists with processes in the fintech industry like digital ID verification, insurance, authentication, etc.
- Blockchain helps in the reconciliation of payments a lot better than existing methods.
- Fintech firms use blockchain to generate and store the credit score of various consumers.
- Fintech has helped in eliminating audit trails & middlemen. It also assists with the supply chain management process.
- KYC (Know Your Customer) process is also done with the help of blockchain in the fintech industry.
In a Nutshell
You can learn more about the application of blockchain in the banking & finance industry via the courses offered by Imarticus Learning. Imarticus will offer you various courses like investment banking courses, fintech courses, etc. to discuss the use cases of blockchain in the industry. Banks are looking for skilled blockchain professionals to enhance their banking processes. This is the right time to build a career in the banking industry as a blockchain expert. Start learning blockchain now!