- Distributed Clearing Mechanism
- Credit Information Systems
- Data Ownership
- Data Sharing
- Financial Transactions
Blockchain Bank Industry: Distributed Clearing Mechanism
So interbank payments often rely on processing by intermediary clearing firms, which involves a series of complicated processes. This includes for example bookkeeping or transaction offsets. Therefore, the process takes time and cost a lot. So using cross-border payments as an example, as the clearing procedures for each country is different. Thus, a transaction requires nearly 3 days to arrive. This shows the low efficiency and immense volume of used funds involved.1
So point-to-point payment can also be implemented using blockchain. With it, we don’t need third parties anymore. Thus, this will improve service efficiency and reduce the transaction costs of banks. So it will also enable banks to satisfy for rapid and convenient payment clearing services for cross-border activities.2
Blockchain Bank Industry: Credit Information Systems
The ineffectiveness of bank credit information systems is mainly due to three things. So first, the lack of data makes it difficult to judge the situation of personal credit. Second are the difficulties in intern data sharing. Also, the unclear ownership of user data leads to difficulties in circulation due to concerns for privacy and security. Also, the solutions to these problems will require the cooperation of different companies, blockchain can help in addressing these issues.
Blockchain Bank Industry: Data Ownership
How Blockchain disrupts the bank industry and therefore establishes data ownership. So all of us produce massive amounts of data on the Internet. These are extremely valuable because they tell a lot about your current credit situation. But large companies own most of this information. Hence, individuals are unable to establish their ownership or utilize these data. Also, in order to protect user privacy, data flow is difficult to achieve between these companies. As a result, this leads to the formation of data islands.
Blockchain can perform data encryption. So this can help us control our own big data and establish ownership. As a result, this can help that the information is genuine and reliable. It can also reduce the costs of data collection by credit agencies.
So using blockchain, big data can become credit resources with clear personal ownership, and even establish the base of future credit systems.
Blockchain Bank Industry: Data Sharing
Blockchain can make it easier to automatically record big data. Thus, it also can help to store and to share encrypted forms of the customer’s credit status within institutions. This enables sharing credit data. So banks should store customer information in their own database. Then they have to employ encryption technology to upload summary information for storage in the blockchain. When there are query requests, the original data provider can be notified using the blockchain and a query can be performed. Therefore, all parties can search for external big data, while also not show their core business data.
So encryption can ensure that the summary and original information are consistent. Thereby preventing the provision of false information that can mislead their counterparts. Within the framework of customer information protection regulations, the blockchain is able to realize the automated encryption and sharing or customer information and transaction records. This helps eliminate redundant work involved between banks.
Blockchain Bank Industry: Financial Transactions
Supply chain finance involves an extensive amount of manual inspections and paper-based transactions. The process also has a lot of intermediaries, a high risk of illegal transactions, high costs, and low efficiency. Blockchain can reduce manual interventions and employ smart contracts in order to digitize procedures that rely heavily on paperwork. So this would greatly improve the efficiency of supply chain finance and reduce manual operational risks. Thus, smart contracts can ensure that payments are made automatically once a certain time and result are reached. A Dapp in supply chain finance can help reduce the costs to banks and trade financing enterprises.3
Also, transaction efficiency improvement ensures a smoother flow of overall trade financing channels, which greatly increase the income of the overall trade chain.4
Blockchain disrupts the bank industry and the technology of the payment clearing and credit information systems in banks, thus upgrading and transforming them. Dapps also promote the formation of multi-center, weakly intermediated scenarios, which will enhance the efficiency of the banking industry.
So it is worth noting that the problems of regulation, efficiency, and security have always sparked debates in the process of each new financial innovation. But regulations and other problems won´t stop blockchain and we see a great future.
- Report by China International Capital Corporation, Changing the Infrastructure of the Financial Sector
- Bitcoin ChainB: Standard Chartered Completed 10-Second Cross-Border Payment Using Blockchain, http://chainb.com/?P=Cont&id=2327, 2016-09-30/ 2016-10-23.
- Report by McKinsey: Blockchain—Disrupting the Rules of the Banking Industry,2016-05
- Fortune: So Blockchain Will Be Used by 15% of Big Banks By 2017, http://fortune.com/2016/09/28/blockchain-banks-2017/, 2016-09-28/ 2016-10-23.