When Bitcoin came on the scene, it was mostly brushed aside by incumbent financial organizations as a novelty that would never amount to much.
While it’s still a fairly volatile and new system, cryptocurrency has since taken off. Today, Bitcoin is accepted as currency by many major companies, and everyone who’s ever thought about starting a company is suddenly falling over each other to utilize Bitcoin’s backend technology.
A blockchain, if you don’t know, is a type of digital ledger. But it’s unique in that it creates a decentralized system where every transaction is recorded across a vast network of computers.
Describing blockchain technology in two sentences, like we did above, is like never reading Moby Dick because you saw a whale once. It’s obviously more intricate and complex than a short description, but the core concepts behind the technology are what’s suddenly driving immense interest from major players.
[Related: What is a blockchain?]
And at the forefront of the blockchain transformation are the organizations once thought to be the most disrupted by it: banks.
Cryptocurrency itself may still be too new and disruptive for banks to embrace, but the underlying technology is ripe with opportunity to improve how financial organizations operate. And there’s good reason for banks to be taking notice: According to Accenture, utilizing blockchain could save banks over 30 percent of their current costs, adding up to billions of dollars.
And Denver is at the forefront of the emerging blockchain industry. The biggest blockchain summit in the country was held this year just down the road in Aurora, and multiple startups have popped up looking for ways to integrate this technology into industries like banking and finance.
Here are some of the key ways banks are beginning to utilize this new and powerful technology:
International payments
Blockchains are built on peer-to-peer networks. A payment goes directly to payee from payor, no need for any filters in between.
This is only possible because of the security of blockchain software provides. The distributed ledger makes committing fraud practically impossible, even with international transactions.
But when you’re dealing with international payments between parties that still use old-fashioned currencies, that’s not the case. Verification and authorization slows down the entire process, and for larger payments this can mean weeks or even months of waiting for the transaction to actually come through.
If you’ve ever been on a trip abroad and needed someone to wire even a small amount of money to you in a pinch, you know that it’s far from a painless process.
But some banks are beginning to see the promise of using blockchain to manage international payments for their customers. Santandar Bank recently announced their One Pay FX platform, which allow customers to make payments between four countries initially — Spain, the UK, Brazil and Poland — all on a blockchain-powered platform.
The platform will allow customers to complete same-day international transfers in most cases, and at the longest it might take one day. As these systems grow it will make conducting business globally much easier, encouraging more cross-border transactions.
Identity and fraud protection
Identity theft cost more than $16 billion in 2016. Most of that comes from credit card fraud.
Who backs credit cards? Banks.
Who ends up on the hook for most of the cost for identity and credit card fraud? Ditto.
Integrating blockchain technology could make identity fraud a thing of the past. As Financial Times reports, “blockchain could offer a solution [for identity] because of its cryptographic protection and its ability to share a constantly updated record with many parties.”
The blockchain offers a way to create truth for digital identities, and several startups are already working on ways to apply this to customer verification. The distributed ledger would make fraud nearly impossible, as a malicious party would have to find a way to update piece of data stored across every data point on the network.
This would save banks billions of dollars, as well as potentially make keeping customer identities safe much more efficient.
Trade finance
Banks play a major role in facilitating large-scale trade. They may provide financing, letters of credit and manage many other aspects of this complicated process.
But it all comes down to beans. Soybeans, to be exact.
HSBC recently showed how blockchain technology might have the potential to transform the world of trade finance. In what would have normally taken up to, or in excess of, 10 days to complete, HSBC used a blockchain platform to provide a letter of credit in a transaction that took only 24 hours. As reported by CNBC, “Traditionally this process would take a large amount of time, numerous paper records, and a lot of back and forth between the various parties involved. Blockchain technology promises to change that.”
Trade finance is still largely a paper-driven segment and itching for change. But because it’s so complex, it’s required manual verification and multiple interaction between parties. The blockchain’s ability to immediately verify identities and perform transfers easily across borders promises to upend the traditional trade finance process.
This will likely save banks oodles of cash, as well as facilitate both domestic and international trade.
Bank on it
Blockchain technology offers numerous potential benefits for many industries, but banks have a unique position to take advantage of it. It’s very likely that banks and the financial industry as a whole will continue to look for ways to integrate blockchain software into traditional processes that haven’t changed significantly in decades.
We’re still in the early stages of it, but it’s not crazy to think that we’ll soon all be banking on blockchain-powered platforms.
How, or if, you start making the joke “a chip of the ol’ block,” is out of our purview.
Related posts:
· What is cryptocurrency and why should I care?
· Five surprising applications of blockchain technology