Blockchain in banks. Advantages and examples
Banking organizations are actively examining blockchain opportunities in order to apply this technology for their purposes. However, not a single bank has built a functional blockchain ecosystem yet. Nevertheless, excitement of the blockchain is continuing. So, what is the reason?
Reasons for such an excitement
The fact is that blockchain advantages allow not only to create a new banking data management system but also to save money literally everywhere. Some people compare a potential impact of the blockchain in the financial sector with the way the Internet has influenced it.
- Transactions transparency. All blockchain transactions are recorded automatically and are partially public, i.e. one can see an amount of transfer and address of a wallet or an account, making payment, but can’t find out a core of the transaction as well as an information on transaction participants.
- No intermediaries. This advantage allows both banks and customers to save money. All blockchain operations are carried out directly between parties without any intermediaries. Thus, there is no fees in the blockchain.
- Protection. All blockchain records are protected cryptographically. As soon as the record enters a block, it can’t be changed anymore: this is the blockchain concept. The fact is that data recorded in blocks are stored on all blockchain computers at once instead of any separate service. Therefore, to change a block, intruders will have to hack all blockchain computers at the same time. Such situation has not yet happened within the whole bitcoin history.
- Speed. Currently, banking processes pass long procedures of data verification, confirmation and validation. It refers not only to document flow but also to common international payments. Longtime transaction processing leads to efficiency loosing and potential revenue reducing. The blockchain replaces all numerous data confirmation patterns and speed up any processes.
Where to save by implementing blockchain?
- A conjoint analysis of 50 banking organizations made by McLagan and Wirex has allowed to find out how the blockchain influences a reduction of operating costs.
- reduction of expenses for financial data reporting by 70%. This figure was influenced by data quality optimization as well as increasing level of transparency and internal regulation;
- reduction of costs for compliance with legislative regulation by 30-50%. These figures were caused by the simplified process of financial transaction confirmation;
- reduction of expenditures for centralized activity by 50%. The blockchain allows to simplify a shared access to client data and improve mechanisms of digital identity;
- reduction of costs for business operations by 50%. This figure was affected by the reduced demand to confirm deals and look for errors. Besides, the activity of mutual payment and clearing specialists can be partially automated using the blockchain.
Blockchain application areas and adoption period in banks
According to the research of IBM institute and Economist Intelligence Unit, blockchain key application areas in banking organizations are related with making payments in cryptocurrency: retail payments, consumer crediting, cash operations, trade financing, corporate crediting, mortgage loans, deposits, international payments and reference data.
Besides, the investigation stresses that only 15% of banks will start implementing blockchain by 2018. Since 2018 to 2020, 51% of banks will massively implement blockchain in their operations. And just after 2020, there will be 34% of followers, making sure in blockchain efficiency and deciding to use this technology.
Blockchain examples in banks
One of spectacular examples of blockchain and smart contract application is a tandem of 7 Airlines and Alfa Banks. They managed to conduct an international letter of credit as a transaction via Ethereum blockchain. The transaction period decreased from 14 days to 23 seconds. Comment is needless.
Kazakhstan is also going to integrate the blockchain, but into the short-term obligation trading sector. The Central Bank of Kazakhstan is developing blockchain solutions to conduct daily auctions on selling short-term notes with a repayment period ranging from seven days to one year.
The SWIFT system can be one of the most spectacular blockchain examples in the banking area. This interbank system has started testing blockchain for transferring information and making payments. SWIFT was joined by more than 100 financial institutions.
Central Bank of Belarus developed a blockchain-based information network in its banking system. The system has already processed information on bank guarantee issuing. According to authorities, the next stage will be blockchain implementation in the securities trading sector.
The Central Bank of Russia also stays abreast with this trend. Due to numerous sanctions, Russian banks can’t connect to the SWIFT system, thus the regulator has created its own analogue: the service for transfer of financial messages (SPFS). Currently, the Central Bank is shifting it to the blockchain for protection maximization.
Despite the abundance of successful examples, not all blockchain opportunities and features are explored to a full degree. Its integration is frequently limited to testing stages and application announcements. However, experts believe in the blockchain efficiency and predicts the technology a promising future.