The rising interest in the blockchain has created increased use cases across multiple sectors. Blockchain technology is expected to drastically alter the banking, financial services, and insurance (BFSI) industry.
According to the Global Blockchain survey conducted by Deloitte, 81 percent of financial services industry (FSI) executives consider blockchain technology to be "broadly scalable" and has achieved mainstream adoption.
Blockchain technology has the potential to harness the current pain points that exist in the banking system, such as security, transparency, programmability, and performance. Banks and banking associations have been researching, testing, and implementing blockchain technology for several years. The major proponents of blockchain technology are the Global banks, who have become market leaders and innovators.
TOP FIVE USE CASES OF BLOCKCHAIN BANKING
Decentralized Finance: Decentralized finance, also known as DeFi, manages financial transactions using blockchain technology. DeFi aims to democratize finance by replacing legacy, centralized institutions with P2P (peer-to-peer) payments capable of providing a full range of financial services, including everyday banking solutions, which are possible through the blockchain.
KYC/AML: Creating a blockchain-enabled Anti-money laundering (AML)/know your customer (KYC) framework can help streamline AML/KYC processes by recording KYC and AML data and information on a decentralized ledger. The data recorded on a blockchain ledger cannot be changed or deleted, and it is always visible to all members of the network.
Security: Blockchain functions on the concepts of decentralization and transparency, it is immutable, and all network participants receive an identical copy of the distributed ledger of transactions. As a result, when used in banking, blockchain can improve the validity and security of financial transactions, eliminate the need for third-party authentication, and solve the problem of a single point of failure and hacks. In addition, blockchain can help in reducing fraudulent and illegal transactions.
Cross-border remittances: Blockchain, as a rapid, transparent, and secure technology, has the potential to increase the remittance payment market significantly. By removing the need for intermediaries, blockchain technology can speed up and simplify international payments, making remittances more affordable while maintaining security standards.
Trade Finance: Blockchain is crucial for the trade finance industry as it deals with financial transactions related to domestic and international trade. Blockchain-based trade finance can streamline the entire trading process by eliminating time-consuming paperwork. In 2017, a cross-border supply chain system built on blockchain was developed by IBM and Maersk.
Central banks worldwide are actively researching and evaluating potential blockchain applications in CBDC. Since 2016, many central banks have launched projects implementing blockchain in CBDC. With the help of CBDCs, end-users can receive exceptional advantages such as peer-to-peer transfers and transparency with the help of digitization. In addition, governments and central banks worldwide are examining the use of government-backed digital currencies using blockchain technology.