Banking and finance industry is neck –deep in problems. From frauds, credit risks, to data breaches, the industry is reeling under mounting pressure to increase customer satisfaction, outweigh competition, and improve its bottom line.
The invention of Bitcoin, cryptocurrency, was a trendsetter in the banking industry. Bitcoin allows peers to share currency across a network, without the need of a central bank. It made banks realize the usefulness of cryptography, transparency and more. Since 2008, when Bitcoin was introduced in the market, it has grown in value. At the time of writing this article, it is valued at $7,107.98
According to a report, 90% of European and United Sates banks experimented with blockchain-based solution in 2018.
Combining banking and blockchain
Blockchain, the technology underlying Bitcoin, is a promising technology for the industry. Blockchain poses solution to resolve several operational challenges, making them more efficient, faster, and result driven. Characteristically, Blockchain facilitates transparency, security, and immutability. Meaning any record on a network will be visible to the people on the network. Secondly, records on the network will be secured, eliminating possibilities of data theft and other data breaches. Further, data modification is an intensely scrutinized process on blockchain. Therefore, data remains unchanged until a consensus is delivered.
Not only this, blockchain has ushered in a revolution, marking entry of new job roles like blockchain engineers. The number of jobs software engineers with blockchain development skills has increased by 517% in the past year, according to Hired.
How does blockchain benefit banking and finance industry?
Banking and finance remains a sophisticated industry with complex processes. Blockchain presents a solution to simplify those processes, streamline operations and make them more convenient. Blockchain clearly has a promising side to it for banking and finance sector.
Blockchain is beneficial to banking and finance for the following reasons –
1. Security — Data security is a primary concern in retail as well as commercial banking. Banks have multiple levels of security layers – front office, middle office, and back office. Data is passed through these layers. Still chances of servers being hacked are still there. With blockchain, this problem is eliminated. As every time data is accessed, it is recorded. Further, chances of being hacked is reduced drastically.
2. Accessibility – To access data at a bank, there are multiple levels which are processed by legacy systems. With Blockchain’s decentralization, it would be easier to access information. This will make the process of accessing information faster. Whether this will lead to any monetary benefit or not can be answered after a period of time.
3. Auditing – Auditing is an expensive and time-consuming process, where compliance officers and executives decide which information to keep and what to share with regulatory bodies to suit the bank’s narrative.
With a decentralized database, government and regulatory agencies can see exactly what the bank has done. As modification of data isn’t permissible on blockchain, it would compel banks to stay honest and ethical in their approach to work.
4. Jobs – Working with blockchain-based solutions requires a particular set of skills, except banking. These skills are hard to come by unless you are taking a blockchain certification or a course. So blockchain is driving an all-new workforce toward banks. People who are equipped with the skills can find opportunities at banks.
Perhaps, Bitcoin, the first of blockchain-based financial entity would continue its legacy and we will see new trends set banking and finance sector on a progressive path. Let’s wait and see what the future holds for blockchain and BFSI.