The banking industry has taken a huge hit in the past decade.
They need a fresh start. Well, as fresh as they can be.
In general, financial institutions aren’t looking so hot. From the 2008 banking crisis in the US to India’s current public-sector banking overhaul, things could be better.
The big guys like Wells Fargo and JPMorgan are looking to upgrade their platforms.
One of many avenues, and definitely one of the buzzwords of the new year, is blockchain technology.
The distributed ledger technology is lauded for its benefits and critiqued for its faults. But its popularity can’t be denied.
To save themselves from becoming outdated or going extinct, big banks are looking to implement blockchain.
Here’s why, and how, your bank’s blockchain dreams affect you, your small business, and your bottom line.
The current banking system, both domestic and international, takes a long time.
This is because traditional banks are saturated with regulations that force them to process payments manually. Your banker isn’t Usain Bolt, and you’ve probably found yourself dreading a late or lost transfer.
These delays can disrupt your supply chain, and your supplier relationships.
By implementing blockchain technology, banks can automate the processes that hold up transactions.
Blockchain’s process asset transfers quickly, because they automate the grunt work. Nobody needs to confirm identities, manually send funds, or contact the bank that will receive the transfer.
All this information is already recorded in the blockchain and can be verified by its own record of previous transactions.
So, in terms of speed, blockchain technology streamlines bank processes.
A big reason why customers stay with traditional banks is the promise of security.
But, actions speak louder than words.
Whether it’s external issues with the economy or internal account tampering, banks don’t make your money much safer.
In fact, your payment security is often out of your bank’s hands, especially when it comes to global transfers.
The current process of sending payments internationally involves “intermediaries”.
This method is wildly out of date. Each bank that your transfer “touches” is a risk. Your payment may not be recorded properly, may gain extra fees, or may not arrive at all.
By using blockchain technology, banks create their own transfer methods. That means no intermediary banks.
The transaction record is distributed between all participants in the “chain,” so there’s no need to verify information with anyone else. Plus, no information can be changed without gaining over 50% consensus from participants.
More automation means less work. Less work means less workers, and cheaper services.
Banks tack on fees to international transfers and other services. This is because they have to pay someone to perform that task, and because they want to make money.
But either way, blockchain cuts down on operating fees, which should allow banks to cut costs for customers.
As well as increasing security, no intermediary banks means that your transfer doesn’t accrue those extra fees.
But if they utilize blockchain properly, and don’t just want to rifle through your wallet, they don’t have to charge these exorbitant fees
This all sounds great, right? You get to stay with your bank, and you get extra benefits? Sign me up.
Not so fast.
These benefits assume that your bank will use blockchain technology ethically, and will reduce fees in response to their lowered operating fees. From what we know of the banking industry, it’s not exactly known for complying with best practices.
In fact, even the method that banks take advantage of blockchain may disrupt the benefits, and fundamentally affect the advantages and goal of the technology: decentralization.
Not So Good After All?
Decentralization is what makes blockchain technology unique.
The ability to spread information out among all participating parties is how this technology can be more secure than any other for transferring assets.
The fear from analysts and fintech companies alike is that banks are undeniably centralized. A blockchain run by a bank is centered on and controlled by that institution, making hacking efforts much simpler.
Instead of needing to infiltrate over 50% of a blockchain to gain consensus, an attack could potentially take advantage of this central administration and alter records and transaction information.
As well, banks are most likely to use a permission, or private, blockchain. Private blockchains are created by a central user or institution and are different from public blockchains, the standard ledger used by Bitcoin and other cryptocurrencies.
While it might seem that private is more secure than public, a blockchain that’s centrally controlled, while not as open to outside attack, is easily manipulated from the inside.
Those fees we mentioned earlier? Banks could tack those on and use the central administrator to make the changes without consensus. A user could even take advantage of your information for any number of reasons without consent. Even if you trust your bank, why take the risk?
No centralized power means everyone has equal responsibility to the integrity of the ledger.
Banks can clearly benefit from blockchain technology, and their customers (you) could as a result. But, a centralized institution using distributed-ledger technology seems to defeat the purpose.
A bank using blockchain technology is another way to do the same things: charge fees and reduce transparency.
If you want something better, check out Veem.
Veem is a global payments solution helping small businesses succeed internationally.
We utilize blockchain technology and other payments methods to find the perfect route from you to your intended receiver. No intermediaries involved.
No wire fees, no weird foreign exchange rates, and no losing payments. In fact, you can track your transactions yourself, as easily as tracking a package.
What’s not to love?