5 Benefits of Blockchain Technology in the Banking Industry
Over a period, it has been seen that the banking sector is emerging amazingly fast. The reason behind their fast growth is the adoption of strict government policies and the use of new advanced technology in their work. With the use of the latest technology like blockchain, a drastic transformation has been seen; this was concluded in one of the recent studies. From coding test tocloud database management, everything is being used to cope with the recent trends.
Out of all of them, blockchain is the most effective technology used so far. Some people might confuse this technology with bitcoin, but the scope of blockchain is much wider. The blockchain keeps a continuous chain of records that are linked chronologically. These records are immutable, as there is any change in information, it will be recorded in a new block. This technology uses the modern encryptions of the algorithm that helps in storing all the records with utmost security. It can not only record the financial transactions but can also record other non-financial things. Many people confuse them with distributed ledger technology. They should keep in mind that all blockchain is considered to be a from of DLT.
There are many benefits provided by the blockchain in the banking sector. Let’s have a look at them.
- Security: In the banking sector, there are many chances of fraud and hacking that might be very harmful to the banks. According to one study, it was concluded that every year number of fraudulent activities is increasing drastically. To stop these practices, the banking sector has to adopt some changes for the increased level of safety and security. The installation of blockchains in the system has helped to stop the cyber-attacks to a great extent. The system uses a unique fingerprint code. Only if the code is verified, the system can be operated.
- Smart contracts: This is an innovative development that has helped in saving both time and resources as there is no requirement for third party interaction. With the use of this system, smart contracts are used that are automatically enforced, and no one can deny it. The installation of this technology benefits the institute with high security, automation, transparency, and immutability. All these are important aspects required to carry out different activities in banks. There is no such requirement for papers for recording different transactions. Everything is done on a digital basis that is even easy to handle and manage.
- Simplified workflow: There is no doubt that blockchain has helped in simplifying the complex workflow of the banking institution. Much of the complex activities have now become automated; this reduces the chances of error in the whole working. The digitalization of banking operations has boosted productivity by multiple times. Now the banking sector can work that more with fewer chances of delays and errors.
- Improves the financial transaction efficiency: The use of traditional practices in the banking system has led to many delays and errors in the whole working. To eliminate the risk of all these things, the advanced technology blockchain has helped a lot. The process of data reconciliation has become very simplified with the use of this system. In banks, there are so many financial transactions each day, the record maintenance can get a little messy, but the sure of this system has helped a lot to record all the transactions with utmost efficiency.
- KYC and AML have been enhanced: Many banking institutions were finding it difficult to deal with the problems of anti-money laundering and KYC (Know Your Customer). But the use of this system has helped in solving these problems too. This technology has made these two processes much simpler and easier as the organizations that are sharing the same system can get all the information in real-time. This has led to a decrease in the administration cost and also the workload.
These are some of the benefits provided by the installation of blockchain systems in the banking industry. Nowadays, it is essential to cope up with the latest technologies, as then only, the institute can sustain itself in the market and grow. Gone are the days for traditional practices, adopt new things for a better experience.