We as a community are facing an economic slump. We can blame the Millennials for being lazy, the corporations for being greedy, even the government for being least bothered towards the public. We can blame ‘terrorists’ for existing as that takes funding towards war instead of development of infrastructure. We break our backs for minimum wage and put in all efforts in creating savings for ourselves and our loved ones for a rainy day. We trust our banks to safe-guard our assets. They are one institute, we still believe holds our best interests in hearts. But, that’s where we are wrong. Banks are just another business. They have no heart. They waste our capital by plying us with high transaction charges or by increasing interest rates on our loans. Banks are centralized and offer mediocre login security. Some other examples where banking sector needs to pull up their socks are:
- Fraud Reduction: 45% of financial intermediaries, including banks that are centralized, hold database that is vulnerable to cyberattacks. This leads to frauds that are not detected till it is too late.
- Customer care: All our security information is with banks. Be it our social security number, our address or even our maiden names. While this information may be for limited use, this data is easily available to any hacker as banks lack updated security measures to protect our identities.
- Payments: When we access our accounts with ATM (Automated Teller Machines) cards, we pay a high rate in transaction fees. This is justified by banks, stating the intermediaries involved in the process. Similarly, when we deposit money in our own accounts, via CDMs, (Cash Deposit Machines) we are putting away a good fraction of the principle as transaction fees annually!
The banking sector is in need for an overhaul. Blockchain technology – the principle process behind Bitcoin- comes to the rescue. In it, the storage devices for the database aren’t connected to a common processor. Each block—ordered records—has a timestamp and a link to a previous block that helps prevent any form of fraud or double spending.
The World Economic Forum report predicts that by year 2025, up to 10% of the world’s GDP (Gross domestic product) shall be stored on Blockchain Technology. Consumer data security, Smart contracts of employees and a Trading Platform of assets are some of the fields where blockchain can be implemented in the Banking Sector.
Also Read: Blockchain Implementation in Energy Sector
Seven of the top global banks have collaborated to create DTC (Digital Trade Chain) using Blockchain Technology. With it in place, they aim to pool their resources to connect all involved in international trade – buyers, sellers, transporters, banks financing the deals on either side etc. This creates a secure and authorized network for trading!
Blockchain technology in the banking sector is now being undertaken globally. India’s biggest bank, SBI (State Bank of India) has created a new initiative named, ‘BankChain’ This initiative is in partnership with IBM, Microsoft, Skylark, KPMG and 10 commercial banks. They aim to secure trade finances and loan documents on the block. They also hope to increase their ‘Know Your Customer’ database in a secure manner.
Similarly, HSBC and Rabobank along with many other European banks have collaborated with IBM for a blockchain based uniform banking platform.Built on Hyperledger Fabric this will be an open source blockchain framework, and is supposed to go live by next year
There is an increasing demand in the market for Blockchain as it aims to create a decentralized structure wherein direct transaction can be undertaken with reduced fees. This will boost the efficiency of financial institutions without compromising on data confidentiality and transaction security. A step taken in the right direction we think.
Next Read: Blockchain: Our Lord and Saviour