BOSTON–Blockchain has the potential to provide a universal distributed system that can be used by retail financial institutions to “transform” five key areas of operations, according to a new analysis.
The findings, published by GlobalData, a data and analytics company, notes that many banks globally have been testing blockchain technology for some time either to implement in their core banking system or integrate into their traditional systems.
“The need of the hour is to focus on domains where the legal, regulatory, or political environments hinder the establishment of a central controlling authority, crucial for the commercial adoption of blockchain,” said Sean Harrison, retail banking analyst with Global Data.
GlobalData said an analysis of its Disruptor Tech Database reveals blockchain could potentially transform the global retail banking system in the following areas: smart contracts, know your customer (KYC), payments, fraud reduction and customer management.
‘Promising Application’
“One of the most promising applications of blockchain technology is the smart contract,” said GlobalData. “It enforces the obligations of all parties in a contract – without the added expense of a middleman. In case of complex processes such as mortgages, process steps could be automated into smart contracts. Benefits of putting key actors on blockchain could include creating shared copies of legal agreements and full electronic audit trails, expedite funds release, and reduce the time from contract exchange to completion.”
Spain’s Banco Santander has been piloting use cases around precisely that, said GlobalData.
“Banks spend millions of dollars annually to keep up with KYC and customer due diligence regulations,” the analysis continued. “Blockchain allows the independent verification of one client by one organization to be accessed by other organization so the KYC process wouldn’t have to start over again, which in turn reduces the cost burden on banks. The reduction in administrative costs for compliance departments would be significant.”
Other Findings:
- Blockchain can speed up and simplify the process of cross-border payments, “cutting out many of the traditional middlemen, while significantly reducing the costs.”
- Blockchain’s distributed ledger would eliminate some of the current crimes being perpetrated online, as it stores, encrypts, and verifies every single bit of data in a transaction. “In the event of a breach or fraudulent activity, it would be made immediately obvious to all parties that have permission to access the transaction data on the ledger.”
- The transparency and traceability of blockchain technology “can improve the effectiveness of loyalty and rewards schemes as part of performance management systems. After all, employee sentiment and use will only improve if rewards are actually delivered and companies and their employees can agree on whether a certain transaction has taken place.”