How will blockchain affect banking
There has been a lot of buzz about blockchain, but will this new technology really change the way we transact in the future? Think of an old-fashioned ledger, one of those big leather-bound books that businesses used for recording their transactions, creating an official public record that was open for inspection. Blockchain is revolutionising the speed and efficiency of transactions. While the application of the technology is still in the proof of concept stage, it could play a positive role in a diverse range of industries and sectors including banking, commerce, healthcare, insurance and government. Impacts on banking are particularly important, with advances such as real-time settlement capability, reducing counterparty risk and enhanced automation. Hopefully, organisations will be able to harness the power of this technology for the advancement of the society and community, especially banks to make global trade and financial services much stronger to help connect communities and help our societies grow.
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- Dossier #5: The hidden impact
- How Blockchain Can Affect Traditional Banking?
- How Blockchain Could Disrupt Banking
- Cryptocurrency, Blockchain, and NFTs: The Opportunity for Financial Institutions
- Blockchain and retail banking: Making the connection
- Can Bitcoin Kill Central Banks?
- Blockchain Use Cases For Banks In 2020
- How decentralized finance will transform business financial services – especially for SMEs
Dossier #5: The hidden impact
Blockchain is transforming everything from payments transactions to how money is raised in the private market. Will the traditional banking industry embrace this technology or be replaced by it? Blockchain technology has received a lot of attention over the last decade, propelling beyond the praise of niche Bitcoin fanatics and into the mainstream conversation of banking experts and investors.
Someone is going to get killed. It is a vehicle to perpetrate fraud. Despite the skepticism, the question of whether blockchain and decentralized ledger technology DLT will replace or revolutionize elements of the banking system remains.
And this very loud and public backlash against cryptocurrencies from banks begs another question: What do banks have to be afraid of? Blockchain technology provides a way for untrusted parties to come to agreement on the state of a database, without using a middleman. By providing a ledger that nobody administers, a blockchain could provide specific financial services — like payments or securitization — without the need for a bank.
Read on for a deep dive into how blockchain technology could turn the traditional banking industry on its head while enabling new business models through technology. To learn about the other industries blockchain is affecting, take a look at our article on 58 industries blockchain could disrupt.
Today, trillions of dollars slosh around the world via an antiquated system of slow payments and added fees. The number of confirmed Bitcoin transactions per day has grown 6x from just over 50, in to over , as of February Source: Blockchain. Facilitating payments is highly profitable for banks, providing them with little incentive to lower fees. Cryptocurrencies like bitcoin and ether are built on public blockchains Bitcoin and Ethereum , respectively that anyone can use to send and receive money.
In this way, public blockchains cut down on the need for trusted third parties to verify transactions and give people around the world access to fast, cheap, and borderless payments. Bitcoin transactions take 10 minutes on average to settle, although this can lengthen to hours or even days in extreme cases. And due to their decentralized and complex nature, crypto-based transactions are difficult for governments and regulatory bodies to control, observe, and shut down.
Developers are also working on scaling cheaper solutions to process crypto transactions more quickly. While cryptocurrencies are a long way from completely replacing fiat currencies like the US dollar when it comes to payments, the last couple of years have seen mostly upward growth in transaction volume for cryptocurrencies like bitcoin and ether.
Some companies are using blockchain technology to improve B2B payments in developing economies. One example is BitPesa , which facilitates blockchain-based payments in countries like Kenya, Nigeria, and Uganda. BitPesa is also widely used for remittances sent throughout sub-Saharan Africa, the most expensive region in the world for sending money. Blockchain companies are also focusing on enabling businesses to be able to accept cryptocurrencies as payment.
For example, BitPay , a payment service provider that helps merchants accept and store bitcoin payments, has a number of integrations with e-commerce platforms like Shopify and WooCommerce. Ethereum-based payments platform Airfox , which was acquired by Brazil-based retailer Via Varejo in May , has partnered with MasterCard to allow customers to pay using its banQi app at global points of sale, as well as at every Via Varejo location.
Consumers in the country can now pay using the HUPAYX mobile app and point-of-sale infrastructure at over , stores, including duty-free stores and shopping complexes. Blockchain technology is also being used to facilitate micropayments, which represent amounts usually less than a dollar. For instance, SatoshiPay , an online cryptocurrency wallet, allows users to pay tiny amounts to access paid online content on a pay-per-view basis. Users can load their wallet with bitcoin, US dollars, or any other payment token supported by the app.
One big reason behind the coming disruption of the payments industry is the fact that the infrastructure supporting it is just as liable to disruption — the world of clearance and settlements. The fact that an average bank transfer — as described above — takes 3 days to settle has a lot to do with the way our financial infrastructure was built. Moving money around the world is a logistical nightmare for the banks themselves.
Today, a simple bank transfer — from one account to another — has to bypass a complicated system of intermediaries, from correspondent banks to custodial services, before it ever reaches any kind of destination. The two bank balances have to be reconciled across a global financial system, comprised of a wide network of traders, funds, asset managers, and more.
Each correspondent bank maintains different ledgers, at the originating bank and the receiving bank, which means that these different ledgers have to be reconciled at the end of the day. The actual money is then processed through a system of intermediaries. Each intermediary adds additional cost to the transaction and creates a potential point of failure. That means that instead of having to rely on a network of custodial services and correspondent banks, transactions could be settled directly on a public blockchain.
This stands in contrast to current banking systems, which clear and settle a transaction days after a payment. That might help alleviate the high costs of maintaining a global network of correspondent banks.
Ripple , an enterprise blockchain services provider, is the most prominent player working on clearance and settlement. While the company is best known for its associated cryptocurrency XRP, the venture-backed company itself is building out blockchain-based solutions for banks to use for clearance and settlement.
Ripple currently has over customers in over 40 countries signed up to experiment with its blockchain network. If a trader in Mexico wants to send money to their counterpart in the US, a traditional bank transaction would require that both traders have local currency accounts in the countries they wish to receive their money in. The trader in Mexico can simply use Mexican pesos to buy XRP tokens through the exchange to pay their American counterpart.
And this entire transaction can happen in a fraction of a second, Ripple claims. R3 is another major player working on distributed ledger technology for banks. While SNB plans to expand the trial to cross-border payments in , it has not yet decided whether to issue its own central bank digital currency. Projects like Ripple and R3 are working with traditional banks to bring greater efficiency to the sector. Blockchain projects are doing more than just making existing processes more efficient, however.
The fundraising space is a notable example of this. Raising money through venture capital is an arduous process. Entrepreneurs put together decks, sit through countless meetings with partners, and endure long negotiations over equity and valuation in the hopes of exchanging some chunk of their company for a check.
In contrast, some companies are raising funds via initial coin offerings ICOs , powered by public blockchains like Ethereum and Bitcoin. In an ICO, projects sell tokens, or coins, in exchange for funding often denominated in bitcoin or ether.
The value of the token is — at least in theory — tied to the success of the blockchain company. Investing in tokens is a way for investors to bet directly on usage and value. Through ICOs, blockchain companies can short-circuit the conventional fundraising process by selling tokens directly to the public. Some high-profile ICOs have raised hundreds of millions — even billions — of dollars before proof of a viable product.
After soaring in early , ICO funding has since fallen significantly. At the same time, initial coin offerings represent a paradigm shift in how companies finance development. First, ICOs occur globally and online, giving companies access to an exponentially larger pool of investors.
Second, ICOs give companies immediate access to liquidity. Compare that to 10 years for venture-backed startups. Venture capital firms have taken notice, with Sequoia , Andreessen Horowitz , and Union Square Ventures , among others, all directly investing in ICOs, as well as gaining exposure by investing in cryptocurrency hedge funds.
And I hope it does. The democratization of everything is what has excited me about technology from the beginning. The idea behind the ICO is to sell tokens to users and bootstrap a payment platform on top of the messaging network.
If, as blockchain advocates predict, the next Facebook, Google, and Amazon are built around decentralized protocols and launched via ICO, it will eat directly into investment banking margins. Several promising blockchain companies have emerged around this space. Companies like CoinList , which began as a collaboration between Protocol Labs and AngelList, are bringing digital assets to the mainstream by helping blockchain companies structure legal and compliant ICOs. CoinList has developed a bank-grade compliance process that blockchain companies can access through a streamlined API, helping projects ensure everything from due diligence to investor accreditation.
Investment banks today are experimenting with automation to help eliminate the thousands of work hours that go into an IPO. And CoinList is just the start. A number of companies are emerging around the new ICO ecosystem, from Waves , a platform for storing, managing, and issuing digital assets, to Republic. Of course — given regulatory pronouncements — ICO activity should be taken with a grain of salt, and the bubble of unregulated ICOs largely burst after This is not just limited to company fundraising, but also to the underlying fabric of securities.
The Blockchain 50 is our first-ever ranking of the 50 most promising companies within the blockchain ecosystem. To buy or sell assets like stocks, debt, and commodities, you need a way to keep track of who owns what.
Financial markets today accomplish this through a complex chain of brokers, exchanges, central security depositories, clearinghouses, and custodian banks. These different parties have been built around an outdated system of paper ownership that is not only slow, but can be inaccurate and prone to deception. Say you want to buy a share of Apple stock.
You might place an order through a stock exchange, which matches you with a seller. So we outsource the shares to custodian banks for safekeeping. To settle and clear an order on an exchange involves multiple intermediaries and points of failure.
In practice, that means that when you buy or sell an asset, that order is relayed through a whole bunch of third parties. Transferring ownership is complicated because each party maintains their own version of the truth in a separate ledger. Because there are so many different parties involved, transactions often have to be manually validated. Each party charges a fee. Blockchain technology promises to revolutionize financial markets by creating a decentralized database of unique, digital assets.
The potential for disruption is massive. While fees are typically lower than. Using blockchain technology, tokenized securities have the potential to cut out middlemen such as custodian banks altogether, lowering asset exchange fees. Source: Trefis. Further, through smart contracts, tokenized securities can work as programmable equity — paying out dividends or performing stock buybacks through a couple lines of code.
Finally, putting real-world assets on blockchain technology has the potential to usher in broader, global access to markets. Polymath is one of the blockchain technology companies that wants to help migrate trillions of dollars of financial securities to the blockchain.
How Blockchain Can Affect Traditional Banking?
Jaideep Sharma October 23rd. Blockchain is digital information that is stored in a public database. It usually consists of cryptocurrencies and provides added security for a variety of financial transactions. With blockchain, banks can store information about transactions such as the date, time and dollar amount of a recent purchase.
How Blockchain Could Disrupt Banking
Cryptocurrency, Blockchain, and NFTs: The Opportunity for Financial Institutions
The potential use cases of Blockchain technology, as well as the number of Blockchain development companies and start-ups, has been constantly on the rise. Amongst the many industries that have been disrupted using Blockchain solutions, the Banking industry is definitely at the forefront of it. So much so that the conversations around Blockchain have now moved from niche fanatics and enthusiasts to mainstream banking experts and investors. In fact, a recent Accenture report showed that 9 out of 10 executives from major banks admitted that their institutions are currently exploring potential Blockchain technology solutions. This means banks are definitely interested in Blockchain.
Blockchain and retail banking: Making the connection
Financial services are defined by the International Monetary Fund IMF as processes by which consumers or businesses acquire financial goods. It involves a wide range of economic activities provided by the finance industry, such as banking, investing, and insurance. The financial services sector is classed as one of the most important within the global economy and is for the most part the primary driver of national economies. Despite its positive impact, history has shown that the financial services sector has also played a negative role in causing global recessions and poverty when incorrectly managed, and hence can produce disastrous results. Blockchain technology can have a significant impact on the financial services sector in many different ways and can provide overall benefits for governments, companies, and individuals alike. In this article, we will discuss the benefits that blockchain technology may bring into the financial services sector from both a company and a regulatory perspective.
Can Bitcoin Kill Central Banks?
A few days ago, The Merkle ran a story that R3CEV, the largest blockchain consortium of banks and technology firms, admitted that the technology they are developing does not use a blockchain and as such they admitted defeat. A day before that article, R3CEV released a story about when a blockchain is not a blockchain to explain that what the R3 partnership is developing is actually not a blockchain, but an open source distributed ledger technology Corda. The distributed ledger platform that has been developed by R3CEV in collaboration with 70 global institutions from all corners of the financial services industry has a few unique settings that, according to R3CEV, makes it not a blockchain. These changes were required to satisfy regulatory, privacy and scalability concerns. As such, the platform restricts access to data within agreements to predetermined actors and the financial agreements used are smart contracts that are actually legally enforceable as they are rooted firmly in law. Whether it is a blockchain or not, or simply a different version of a type of blockchain with different features is not important, as it is mere semantics. More important is that the financial industry is working hard to be ready for the future. There are quite a few benefits for the financial services industry to be achieved by using distributed ledger technologies for the sake of keeping things simple, I will refer to these technologies as Blockchain.
Blockchain Use Cases For Banks In 2020
Blockchain in banking promises a higher level of decentralization, transparency, and security. Learn how this technology helps the banking industry tackle the main issues this sector faced. Maximum financial services sectors have invested substantially in many services and apps because of security violations, digital threats, and network downtime issues, among other problems that may arise. Since the banking sector has been always the foremost mover, it has embraced new technologies for moving from traditional banking practices to feasible banking services.
How decentralized finance will transform business financial services – especially for SMEs
Deutsche Bank Analyst Marion Laboure tells us how the development of digital currencies will shape the future of payments. Mobile money is booming in the West African country. Digital payments are trending. But some might feel left out. By executing digital transactions we generate data that reveals a lot about us. But what exactly?
Not quite surprising, is it? As we all know by now, banks are no longer critical for financial management. This, in no way, means that banks are disappearing. Taking advantage of this situation, open banking is contributing both in terms of the impact it has on consumers and businesses and the value of the products that could be developed. All of these are made possible with blockchain entering the scene. Although there are challenges to overcome before blockchain takes over banking and financial services, the potential labor and cost savings are so appealing that most financial institutions are now investing millions in hiring resources to do thorough research on implementing it.
Through their policymaking, central banks played a key role in manufacturing the financial crisis. With its decentralized system and peer-to-peer technology, Bitcoin has the potential to dismantle a banking system in which a central authority is responsible for decisions that affect the economic fortunes of entire countries. But the cryptocurrency has its own set of drawbacks that make it difficult to make a case for a decentralized system consisting of the cryptocurrency.