Blockchain technology in retail banking: Opportunities

With the emergence of blockchain technology, banks look more at the benefits it can bring. Our experience in retail banking shows how interesting blockchain is for our clients. Most of them believe that by implementing Hyperledger, for example, they can change their operations fundamentally, improve security, provide better services. Let’s study further the opportunities blockchain offers for retail banking.

Blockchain can be used as another way of paying each other, not depending on SWIFT and other payment schemes.

Chris Huls, Rabobank

How blockchain could change retail banking

Below, we review some of the major challenges banks face today along with the ways blockchain could address these problems.

Remittances/payment transactions

Each year, cross-border transactions increase by 3%. Despite the growth, remittances are still opaque and highly mediated which results in high commission fees from 3 to 10%. Although a lot of fintech companies offering lower fees appeared, there is still the demand for secure financial services at a reasonable price. 

Originally developed for cryptocurrencies like Bitcoin, EOS, or Etherium, blockchain could meet that demand. Compared to current payment systems where money transfer can last days, it takes only a few minutes to settle a transaction through the blockchain system. Moreover, transactions via blockchain are nearly free, transparent, and immutable. 

Among the most famous cases of how banks leverage blockchain technology is Radobank’s case. The bank has started to use Ripple’s Blockchain Protocol for cross-border payments. Ripple promised that their technology could save up to 33 percent of operating costs and increase the speed of money withdrawals. Launched in 2012, Ripple’s system offers quick currency exchange and cross-border transactions. Banks could use it for payments in order to replace a lot of existing intermediaries. 

Despite all the advantages of blockchain-powered solutions, banks are reluctant to adopt this technology. There are still some barriers like security issues, regulatory compliance, and issues associated with fungibility between crypto and fiat money.

Know-your-customer/ID fraud prevention

Know-your-customer tools help banks deal with fraud which has become one of the most important challenges for financial organizations and their customers. Among the biggest threats are ID vulnerabilities, remote deposit fraud, and identity theft. Thus, banks should improve their security measures to protect sensitive data. Dealing with money laundering is as challenging as with fraud that’s why banks adopted anti-money laundering (AML) regulations to prevent risks. 

Surely, all these measures improved efficiency and security, however, it led to higher operational costs and more manual jobs. As an alternative solution to these issues, blockchain offers a digital fingerprint that can is typically used as a personal identifier. Fingerprint owners can use this technology to open a new account or prove their identity. By implementing digital fingerprints, retail banks could facilitate information exchange and share data once it is updated.

Contract management

Blockchain technology is not limited to fast and free transactions or seamless account opening. It could become a good way to conclude smart contracts like loans or construction financing. The main advantage of blockchain is that all the records there can be processed without an intermediary, which provides a higher degree of trust. By combining blockchain with the IoT, for example, banks could assert their treaty rights without legal proceedings. If a client agrees, he or she can be offered more favorable terms and conditions. Nevertheless, some constraints and areas of weaknesses remain. The main roadblock to adopting blockchain for smart contracts in banking is legal jurisdiction. 

Learn about online banking security risks and how to overcome them in our latest article.

As you can see, blockchain technology has a few areas of application in retail banking. However, it is not always possible to implement innovation due to legislation or a lack of appropriate skills. Today, many banks have started exploring how they can effectively use blockchain for their operations: simplifying remittances and enhancing the transparency of payments and authorization processes. Below is a quick reference on what blockchain could offer to retail banks. 

Mortgage

• Create electronic audit trails and seamlessly share legal agreements.
• Simplify the release of funds.
• Decrease the time between the contract exchange and the completion of the deal. 
• Automate the processes by adopting smart contracts.

Customers Loyalty

• Provide bonuses for customers through blockchain.
• Make bonuses available for customers to use instantly. 
• Offer the ability to give permissions of access to digital identity to third parties.

KYC

• Onboard new clients quicker.
• Comply with AML and KYC protocols seamlessly.
• Get opportunities to analyze customer behavior in order to offer better-suited products.

Understanding the key benefits of blockchain, banks are showing a high interest in this technology nowadays. Most of the banks are still on the stage of consideration or early adoption of blockchain. Among the key roadblocks on the way to transformation, there are security issues, the need to train bank employees, and legacy technology infrastructure. 

By offering great benefits, blockchain has all the chances to be implemented in retail banking in 2020, someway. It can facilitate banks’ growth, new product development, and more customer attraction. However, technology should be adopted by most of the banks to become popular and marketable. 

Our team is thrilled to deliver blockchain projects for numerous industries. As part of the digital transformation associated with blockchain, first and foremost, we analyze the following aspects:

1. Client’s business processes and strategy.
2. All the stakeholders’ needs and requirements.
3. Regulatory requirements and restrictions.
4. Existing technology. 

Should you search for the ways to apply blockchain to your existing processes, feel free to contact our team. We have experience in delivering blockchain projects to different industries. As we mentioned, we start with a deep analysis of customer’s processes and strategies, then we capture clients’ needs to come up with ideas on how blockchain can be effectively used in order to address modern challenges of the banks.