With an initial purpose of a mechanism behind cryptocurrencies, today the blockchain technology has stepped far beyond just powering the bitcoin or ether transactions. Blockchain is a powerful and secure technology that is getting into almost every industry, from banking and medicine to the government sector.

 According to Forbes, blockchain brings the following benefits:

• Blockchain records and validates each and every transaction.
• Blockchain does not require third-party authorization.
• Blockchain is decentralized.

The most popular domain of blockchain use is the banking sector because security is of utmost importance for the financial domain. So in this article, we are going to talk about how blockchain can revolutionize banking.

• How Blockchain can be used in Banking?
• Which Banks are using Blockchain?
• Is Blockchain a Threat to Banks?
• How Safe is Blockchain Wallet?

How Blockchain can be used in Banking?

Here are ten use cases of blockchain in banking to help you understand how the financial services industry will be attempting blockchain in the near future.

1. Faster payments

By establishing a decentralized channel (e.g. crypto) for payments, banking institutions can use emerging technologies to facilitate faster payments and lower the fees of processing them.

Read Also: Essential Guide on Blockchain and Cryptocurrencies

By offering higher security and lower cost of sending payments, banks could introduce a new level of service, bring new products to the market, and finally be able to compete with innovative fintech startups.

Moreover, by adopting blockchain, banks will be able to cut down on the need for verification from third parties and accelerate the processing times for traditional bank transfers. Already in 2016, 90% of the European Payments Council members believed that blockchain would change the industry fundamentally by 2025. 

2. Clearance and settlement systems 

A distributed ledger technology like blockchain could enable bank transactions to be settled directly and keep track of them better than existing protocols such as SWIFT. An average bank transfer takes a few days to settle because it’s limited by the way our financial infrastructure was built. 

Moving money around the world is a logistical challenge to many banks. A simple bank transfer needs to bypass a complicated system of intermediaries such as custodial services before it reaches its destination. Moreover, the bank balances need to be reconciled across the global financial system, which comprises a broad network of funds, asset managers, traders, and more. 

For example, if you’d like to send money from an account in a German bank to one in the United States, that transfer will be executed through the Society for Worldwide Interbank Financial Communications (in short, SWIFT). Every day, SWIFT members send 24 million messages to some 10,000 different institutions!

The centralized SWIFT protocol processes only the payment orders. The actual money is processed through a system of intermediaries. Each of them comes at an additional cost and takes a lot of time. 

A decentralized ledger of transactions like blockchain could enable banks to keep track of all the transactions publicly and transparently. Banks won’t need to rely on a network of custodial services and regulatory bodies like SWIFT. They could simply settle transactions directly on a public blockchain.

3. Buying and selling assets

By removing the middleman and asset rights transfer, blockchain lowers the asset exchange fees and reduces the instability of the traditional securities market. According to one source, moving securities on a blockchain could save from $17 to $24 million each year in global trade processing costs. 

Buying and selling assets like stocks, commodities, or debts are based on keeping track of who owns what. Financial markets accomplish this through a complex network of exchanges, brokers, clearinghouses, central security depositories, and custodian banks.

All of these different parties have been constructed around an outdated system of paper ownership. As you can guess, the system is not only slow but riddled with errors and prone to deception. 

Executing such transactions electronically is complicated because most of the time, buyers and sellers don’t rely on the same custodian banks, and these don’t always rely on trusted third parties to hold onto all the paper certificates. 

Note that Germany’s government now allows banking institutions to offer services related to cryptocurrencies. Ukraine is following this path too. 

If you’re buying or selling an asset, the order will be relayed through numerous third parties. That’s why transferring ownership is so complicated. Note that each party maintains its own version of the truth in a separate ledger. The system is not only inefficient but also imprecise. 

Blockchain will revolutionize financial markets by creating a decentralized database of digital assets. A distributed ledger allows transferring the rights of an asset through cryptographic tokens that can represent such assets off-chain.

Currencies like Bitcoin and Ethereum accomplish that with purely digital assets, but many blockchain companies are now working on solutions that would help us tokenize real-world assets such as gold or real estate. Cutting out the middleman will also lower the asset exchange fees and accelerate the process significantly. 

4. Fundraising

Raising money through venture capital is a complicated process today. Most of the time, it happens like this:

Entrepreneurs put decks together, carry out countless meetings with partners, follow long negotiations over valuation and equity – and, eventually, hope to exchange their company for payment. 

Blockchain companies are accelerating the process by raising funds with several alternatives. These include Initial Exchange Offerings (IEOs), Equity Token Offerings (ETO), and Security Token Offerings (STOs). STO is currently the most popular option because it’s legally protected.

To benefit from this model, projects need to pass a due diligence process. Pioneers of STOs include Switzerland and Malta where companies like Scerri & Concise Ltd offer such services. The most prominent ETO trading platform today is Neufund. 

Previously, Initial Coin Offerings (ICOs) were more popular but are now considered scammy and unreliable. 

5. Credit and loans

Traditional banking institutions underwrite loans by using a system of credit reporting. With blockchain, we’re looking at the future of peer-to-peer loans, faster and more secure loan processes in general, and even complex programmed loans that can approximate syndicated loan structure or mortgages. 

Banks that process loan applications evaluate the risk by looking at factors such as credit score, homeownership status, or debt to income ratio. To get all of that information, they need to ask for your credit report provided by specialized credit agencies. In the United States, that amounts to three institutions. 

Such centralized systems are often harmful to consumers because they contain erroneous information. Moreover, concentrating such sensitive information within a small number of institutions makes it very vulnerable.

For example, last year, one of them, Equifax, got hacked, and exposed the credit information of over 145 million Americans. Now you can see why blockchain offers a more secure, efficient, and cheaper way of processing loan applications.

6. Trade finance

Another area blockchain is set to revolutionize the trade finance sector. Trade finance refers to all of the financial activities related to international trade and commerce.

Did you know that many trade finance activities today still rely on paperwork such as invoices, letters of credit, or bills? Many order management systems allow carrying out this work online, but the process takes a lot of time. 

Blockchain-based trade finance will streamline the trading process by getting rid of such time-consuming manual processes, paperwork, and bureaucracy. 

Consider this example: 

In traditional trade finance systems, all of the participants need to maintain their own database for transaction-related documents. And all of these databases need to be continuously reconciled against each other. A single error in one document may be duplicated to the copies of this document in other databases. 

How does blockchain help? With blockchain, there’s no need to keep several copies of the same document. That’s because the information can be integrated into one digital document, which is updated in real time and can be accessed by all network members.

7. Digital identity verification

Banks wouldn’t be able to carry out online financial transactions without identity verification. However, the verification process consists of many different steps that consumers don’t like. It can be face-to-face checking, a form of authentication (for example, every time you log into the service), or authorization. For security reasons, all of these steps need to be taken for every new service provider. 

With blockchain, consumers and companies will benefit from accelerated verification processes. That’s because blockchain will make it possible to reuse identity verification for other services securely. 

The most popular innovation in this area is Zero Knowledge Proof. Several countries and large corporations are now working on solutions based on ZKP.

Thanks to blockchain, users will be able to choose how they wish to identify themselves and with whom they agree to share their identity. They will need to register their identity on the blockchain only once.

There’s no need for repeating that registration for every service provider – as long as those providers are also powered by the blockchain. Naturally, storing this type of information on a blockchain also ensures its security.

8. Accounting and auditing

Accounting has been a relatively slow area to digitize. One of the reasons behind that is the need to match the strict regulatory requirements regarding data integrity and validity. That’s why accounting is potentially another area that could be transformed with blockchain. 

Experts believe that the technology will simplify compliance and streamline the traditional double-entry bookkeeping systems. Instead of keeping separate records based on transaction receipts, businesses can add transactions directly into a joint register. All the entries in the register will be distributed. 

As a result, the records will be more transparent and secure. A blockchain would work like a digital notary who verifies all the transactions. Blockchain smart contracts could be used in such applications to pay for invoices automatically as well.

9. Hedge funds

A hedge fund is a type of investment partnership that involves a fund manager and a group of investors who are limited partners. But such participants are usually traders and not your ordinary investors. The idea behind hedge funds is maximizing investor returns and minimizing the risks. 

According to Autonomous NEXT, the number of hedge funds trading cryptocurrencies doubled between October 2017 and February 2018. 

A decentralized crypto hedge fund provides an open platform that allows more investors and strategists to participate. Traditional hedge funds are controlled by fund managers who work within a single entity. Such decentralization is an excellent example of the potential of blockchain for the financial services industry.

10. Peer-to-peer (P2P) transfers

P2P transfers allow customers to transfer funds from their bank accounts or credit cards to another person online. Currently, there are many P2P transfer applications available on the market. But they all come with certain limitations. 

For example, some of them allow you to transfer money only within a certain geographical region. Others don’t allow you to transfer money if both parties are located in the same country. Moreover, P2P services may charge large commissions for their services and not be secure enough for storing sensitive customer data. 

All of these problems can be addressed with blockchain. The technology will help to decentralize applications for peer-to-peer transfers. Note that blockchain has no geographical limitations, enabling P2P transfer across the entire globe.

Moreover, blockchain-based transactions will take place in real-time, so the recipient won’t have to wait four days until they receive money.

Which Banks are using Blockchain?

According to technology company IBM, the rate at which banks are adopting the blockchain is ‘far faster’ than originally thought. It found that 15 percent of the 200 global banks surveyed intended to roll out, full-scale, commercial blockchain products in 2019.

Interestingly, it found that medium to large institutions, with more than 100,000 employees, were leading the charge. A further 65 percent are expected to have blockchain projects in production within the next three years. 

So which major banks have adopted or are starting to adopt the blockchain technology?

Goldman Sachs

As one of the leading U.S. investment banking institutions, Goldman Sachs set up a microsite explaining the benefits of blockchain technology in the summer. One of the key features from the comprehensive site is the technology’s security: it provides a simple, secure way to establish trust for virtually any kind of transaction, helping simplify the movement of money, products or sensitive information worldwide.

In its continual drive to help advance the developments of the blockchain, Goldman Sachs has been involved in a number of blockchain technology-based companies.

These include the likes of blockchain-based payments startup Circle Internet Financial and blockchain-based startup Digital Asset Holdings. Last February, the Wall Street bank join Digital Asset Holdings funding round, helping to push the amount raised above $60 million.

Microsoft and Bank of America Merrill Lynch

These two organisations are working together on a project to use the blockchain to make trade finance transactions faster, cheaper, safer and more transparent.

Currently, trade finance processes are costly and time-consuming, with the existing process typically taking between seven and 10 days to complete; however, with the blockchain they can be digitised and automated, shortening transaction settlement times. Microsoft’s Azure Blockchain-as-a-Service will be used for the project.

R3, Barclays, HSBC, and Co.

Fintech firm R3 has announced that it and 22 of the world’s biggest banks have created an international payments system based on the blockchain. A prototype of the solution is expected to be out by the end of the year.

The banks involved include Barclays, BBVA, CIBC, Commerzbank, DNB, HSBC, Intesa, KBC, KB Kookmin Bank, KEB Hana Bank, Natixis, Shinhan Bank, TD Bank, US Bank, and Woori Bank. According to the R3 release, the aim is to deliver a safe and secure way to speed international payments and improve cross-border business.

Royal Bank of Canada

In a bid to aid the transfer of payments between its U.S. and Canadian banks, the Royal Bank of Canada (RBC) is experimenting with the blockchain. Martin Wildberger, RBC’s executive vice president for innovation and technology, explained in September that the use of the technology would improve the speed of payments, reduce complexity and lower costs.

Previously, the RBC had said that it was against using the blockchain for its interbank payment system, stating that ‘too many hurdles’ needed to be overcome first.

JPMorgan, Royal Bank of Canada and Australia and New Zealand Banking Group

Despite the fact that Jamie Dimon, JPMorgan Chase CEO, is against bitcoin, the Wall Street banker sees the advantages that the blockchain can deliver. So much so, that JPMorgan has teamed up with RBC and the Australia and New Zealand Banking Group to launch a new initiative, known as the Interbank Information Network (IIN).

Developed by JPMorgan, the technology will be powered by Quorum, a variant of the Ethereum blockchain, to allow secure data sharing. In the near future other banks are expected to join the network. On a daily basis JPMorgan processes $5 trillion for its clients across over 100 countries. IIN is expected to enhance customer experience, decrease the amount of time – from weeks to hours – and the costs involved with payment delays.

Fujitsu and Three of Japan’s Largest Banks

Japanese multinational IT provider Fujitsu is to begin working with [three of Japan’s major banks in January 2018])(http://www.bankingtech.com/1024532/fujitsu-to-trial-blockchain-payments-with-three-japanese-banks) to undertake a blockchain test.

The banks involved are Mizuho Financial Group, Sumitomo Mitsui Financial Group (SMFG) and Mitsubishi UFJ Financial Group (MUFG). Lasting for three months, the test will involve the trial of a person-to-person (P2P) money transfer service using the technology.

The IT provider will be creating a cloud-based blockchain platform for money transfers between individuals that can also be used by the three banks. Over the three-month period, the trial will determine whether the platform can ‘accurately and securely’ handle processes and clearing and settlement.

State Bank of India and BankChain

India’s largest bank, the State Bank of India (SBI), has revealed that it is working toward introducing a safer banking system in India through the blockchain. It intends to do this with BankChain, a community of banks in India and American multinational technology company Intel.

SBI is the founding member of BankChain, which has 27 members in India and the Middle East. It’s hoped that the blockchain solution will enable SBI to increase the efficiency of transactions without compromising on data and transaction security. Primechain Technologies, which operates BankChain, will deliver the blockchain solution. It will run the Hyperledger Sawtooth and Intel Software Guard Extensions (Intel SGX).

Monetary Authority of Singapore (MAS) and the Association of Banks in Singapore

Singapore’s central bank and financial regulator along with the Association of Banks in Singapore revealed in October that they had a new set of blockchain prototypes for decentralised inter-bank payment and settlements.

They form the second part of Project Ubin, which is a collaborative project with the industry to explore the blockchain for the clearing and settlement of payments and securities. A report of the project and the prototypes are expected to be published during the Singapore FinTech Festival, held on the 13 to 17 November.

Over 40 central banks including France, Germany, Hong Kong and Sweden

According to a report published in January 2019, there are over 40 central banks considering using blockchain technology in various iterations.

While research and innovation with blockchain technology have been underway for the past several years, Although central banks are among the most cautious and prudent institutions in the world, they are, perhaps surprisingly, among the first to implement blockchain technology.

Interestingly, while major banks are exploring the distributed ledger more widely, according to consultant Oliver Wyman, he thinks it will take another ten years before the blockchain is able to change core components in the finance industry.

Is Blockchain a Threat to Banks?

The thing is that the blockchain/banks relationship is complex and cannot be treated as a matter of one replacing the other. Rather, this is a gradually evolving merger with many different aspects — some of which we consider below.

Defining your terms

There is blockchain, and there are cryptocurrencies. They are not the same thing and mean something quite different, despite being closely related. Most those who advocate the ‘blockchain-will-kill-banks’ position don’t know the difference. Cryptocurrencies are forms of tokenized money distributed via a decentralized ledger (blockchain).

Blockchain won’t kill banks, because it is a technology that anyone can use and integrate into their product for their own advantage. That is just what many banks are already doing. For example, Japanese and Korean banks are testing blockchain systems for payments and transactions. Spanish bank Santander has estimated the savings of banks using blockchain at $20 billion a year.

But why are banks doing this in the first place? Like other centralized systems, banks are facing certain problems: scalability, throughput, security and speed issues. Eventually, they won’t be able to process the data correctly and on time. Blockchain is an obvious solution.

As far as existing cryptocurrencies are concerned, there’s a competition between them and the banks, but a reasonable one. The banks realize cryptocurrencies are here to stay. Banks have no other option but to build a bridge to cryptocurrency networks, since the interests of customers will inevitably prevail.

This process will go slowly (approximately 10 to 15 years) but will intensify after most of the banking world has switched to blockchain solutions. That is a good thing both for users and businesses because banks and cryptocurrencies will become more and more tied to one another through seamless connections.

You’ll be able to choose between P2P-payments and traditional banking, which already won’t be traditional since the banks are gradually adopting blockchain solutions. Again, it is important to underline that the banks are not developing cryptocurrencies and running ICOs (though some are making serious attempts in that direction).

Reasonable banks are adopting a technology that is totally coinless, or with coins meant for utility use only. Banks simply seek decentralized blockchain solutions to improve their services, increase security levels and slash operational costs.

Bank-issued crypto

Yet some banks are now developing their own ‘public’ cryptocurrencies. Why? To some bankers, crypto looks attractive simply for the juicy market caps, which make them drool all over their white collars. But in the end, it is very unlikely that branded cryptocurrencies, meaning bank-issued equity tokens, will become a consideration.

You have to put an enormous effort into developing a high-quality new form of digitized money on the blockchain that will truly stand out. Even now most large corporations that adopt blockchain solutions are hiring contractors for the purpose, and these solutions are more about speed and throughput than the creation of new tokenized money.

Then, there’s the fundamentally different philosophy behind banks, which do not seek “financial anarchy” — and that is what cryptocurrencies represent for die-hard bankers. They find blockchain attractive for its practical applications, and they might even tolerate crypto like BTC or ETH, but they will never allow the ethics of cryptocurrencies (in their popular understanding) into their world.

Finally, the nature of banking has nothing to do with equity tokens. It’s like ICO issuers who say they need a token just because they want to, even though there’s no need for one.

Some say a cryptocurrency owned by a bank will attract more customers who don’t want to open an account, but that notion is false since the whole process of opening a bank account will be swift and smooth thanks to the implementation of identity authentication on the blockchain.

Really smart banks do want to be up-to-date and technologically advanced, but they also don’t want to play games in which all good seats are already taken. That will simply lead to a huge waste of money and time.

Any phenomenon has its nuances, and you have to pick the features that are good for you whilst excluding those that are useless. That’s what clever bankers are doing. For instance, six large banks have teamed up to create an internal cryptocurrency — a utility settlement coin — to settle transactions between each other faster and more securely. 

It is fundamentally different from what CitiBank is trying to do in its attempts to create a crypto product for popular demand. Others are not inventing anything new, simply going with existing solutions, offered, for example, by Ripple. Time will tell which decision is more efficient and viable: building decentralized systems from the ground up or implementing ready-made solutions.

How Safe is Blockchain Wallet?

Despite the fact that Blockchain Wallet is a hot crypto vault, we still consider it one of the safest cryptocurrency wallets around. It has introduced more security safeguards against unauthorized access to your account than any other hot wallet.

These, plus the fact that their wallet is feature-rich, makes it a good choice for traders and investors looking for a balance between security and ease of use. These make it a good choice for traders and investors looking for a balance between security and easy to use crypto-wallets.   

For an online transaction, a blockchain wallet app stores private and public keys. The wallet interacts with multiple Blockchains to validate an online payment, allowing users to buy or sell one or several cryptocurrencies.

But the question is what exactly happens in the background that makes a secure online payment possible? Let’s understand this from below:

It is important to understand the concept of public and private keys that are on Blockchain for online payment. The public key is shared with anyone while the private key is kept secret.

Read Also: A Comprehensive Guide to Trading Bitcoin

These keys work in a very similar way to the concept of lock and key: the lock (private key) and the keys (public key). It does not matter how many people have the keys, they can only be useful if they are used to open the correct block, that is, the private key is correctly matched with the public key.

Once you unlock the locker, you can see easily what is stored in it. Similarly, when the private and public keys used in a transaction match, users can see the value of their digital assets (Bitcoins, ICO tokens, etc.) in their wallets.

Now, you are much capable of making the right choice for your blockchain wallet app development. A Blockchain wallet app is simply meant to simplify cryptocurrency exchange for users. Depending upon how frequent and big online payment you have, the choice can be made between different types of blockchain wallets as described above.

Finally

Blockchain wallet app development is at the top of the head these days. This is the reason it has become very famous for electronic payments and transactions. The reason for selecting blockchain wallet development as a payment option is complete security represented by the Bitcoin Wallet application.