Blockchain technology has the potential to change the way financial service transactions are carried out.
Blockchain technology, also known as the decentralised, distributed ledger technology, has gained visibility in India in the last two years. According to a report, in the next five years, Blockchain has a potential to create value to the tune of USD 5 billion in India across all sectors.
Many banks in India are increasingly investing in the technology. Leveraging the distributed ledger technology, a consortium of India’s eleven largest banks including ICICI Bank, Kotak Mahindra Bank, HDFC Bank, Yes Bank, Standard Chartered Bank, RBL Bank, South Indian Bank, and Axis Bank have launched the first ever blockchain-linked loan system in the country. This not only ensures transparency in credit disbursement, it also removes any communication hurdle among the different banks.
Federal Bank recently launched its Blockchain based remittance solution for NRIs.
Blockchain solutions are expected to bring operational efficiency, simplicity and transparency in banking operations. It also enhances banking experiences for customers by reducing transaction time from hours to seconds.
“Blockchain technology also eliminates manual processes and friction in day-to-day trade finance, digital identities and cross-border payments. Banks are using Blockchain to rewire financial markets for optimized cash management and consumer lending while transforming online and international payments processes,” says Jitan Chandanani, Blockchain Offerings & Engagement Leader, IBM India/ South Asia.
“With Blockchain, one can conduct business quickly and securely, moving from paper-based to Blockchain stored transaction records, which can enable expansion to underserved markets such as small and medium enterprises,” he adds.
Promoting Trust and transparency
Blockchain technology has the potential to change the way financial service transactions are carried out. Insurance, Trade Finance, Cross Border Payments, Digital Identities have witnessed an increased adoption which will further facilitate the development of a more strategic BFSI industry. Its distributed ledger technology, smart contracts, security, built-in governance and control capabilities give institutions real-time access to trade finance data and information. This helps mitigate risk, eliminate wait time and increase transparency.
“Banks spend a lot of time and effort identifying and validating records multiple times for the same customers. Requiring customers to provide identifying information repeatedly can erode customer satisfaction and cause transactional delays. In short, banks are using blockchain to promote trust and transparency, eliminate fraud and respond to the changing needs of the market,” explains Chandanani.
Blockchain is expected to have a direct impact on reducing operational costs and improving efficiencies. Although the technology is still in its nascent stages of commercial deployment, there is a need to form policies and procedures to ensure that personally identifiable information is always protected.
With the technology still evolving, clearing the misconceptions created by bitcoins are among the main challenges faced by the industry in adoption of Blockchain solutions. “These are early days with Blockchain technology, and the challenges persist with multiple Blockchain fabrics like Hyperleger, Ethereum, etc. There are trust issues since a member doesn't want to part with their proprietary data.
“In a decentralized ecosystem like Blockchain, it's about how multiple participants can view each other. Even competitors have to become collaborators. There is still time before people start making use of the transformative potential of Blockchain. At the same time, the questions around regulations will have to be resolved through focused discussions with competent regulatory authorities and incorporation of their thought-process. Surely, an effective implementation roadmap can mitigate or address most of these challenges.With more secure and streamlined trade processes, frictionless digital identity interactions and faster, lower-cost, cross-border payments, IBM is helping banks such as SBI, Yes Bank, Mahindra etc., approach businesses in entirely new ways through is blockchain platform.