After UPI, Blockchain Is The Future Of Banking System in India
The finance sector has drastically changed with the evolution of technology. First, goods were exchanged using the barter system. Next, metallic money was used. Then, with the progression of human civilization paper currency or cash and banks were established. Finally, the advancement in technology gave rise to credit cards, debit cards, online banking, e-wallets, UPI, etc.
UPI: The Anywhere-Anytime Banking
Now we no longer have to stand in long queues of banks to make a transaction or even deposit or credit money. Sending or Receiving money is just a few taps away now. This revolution was kickstarted by e-banking & e-wallets like PayTM and UPI and here is how the term ‘Cashless Economy’ was coined.
UPI or Unified Payments Interface is a seamless platform that allows you to manage your multiple bank accounts into a single mobile application. It caters “peer to peer” transactions as per your convenience & requirement.
Therefore, these innovations in technology have made it necessary for a trustable intermediary like banks and after UPI, the next disruptive technology that could absolutely change how the banks work is ‘Blockchain Technology’.
Banks do have faith in the Blockchain-Technology
Hong Kong and Shanghai Banking Corporation Limited or HSBC, one of the world’s largest banks which holds more than $2.7 trillion total assets under management completed Bangladesh’s very first cross-border blockchain trade finance transaction in 2020. They digitized a Letter of Credit on a blockchain platform, thus offering enhanced security and transparency along with being fast. This exchange used to take a minimum of 5-10 days earlier, but now Blockchain Technology brought down the time to less than 24 hours which was a milestone achieved.
Santander Bank has already identified 25 use cases which focus on smart contracts and international payments. Barclays Bank has come up with 45 use cases. A bank called Citibank created its own cryptocurrency known as Citicoin. Similarly, there are other banks that also have already tapped into Blockchain like Deutsche Bank, UBS, BNB Paribas, Bank of America , JP Morgan etc.
With such technology at our fingertips, businesses are focusing on growth and simplifying transactions even more. Thus, many businesses and banks are seeing the value of adopting major scalable blockchain platforms and it is also predicted that within the next three to five years, Blockchain Technology will reach widespread adoption.
The reason behind its such hyped adoption is the technology behind blockchain. Firstly, it requires no intermediaries. It is a shared, non-destructive distributed ledger which is based on proof of work. It has the capability to store business transactions to a permanent unbreakable chain which can be viewed by other parties as well. This permanent, fast and non-destructive way of recording transactions in a distributive network is what makes Blockchain a disruptive technology globally.
Some of its applications in the Finance Sector include Digital Currency, Digital Identity Verification (KYC), trade finance, cross border remittances, Supply Chain Financing, Capital Market Trading etc.
Benefits that Blockchain will provide in the Finance Sector
- Minimal Human Interference – Since this technology does not require any intermediary, therefore minimum human interference would be there thus decreasing human error and making the system more efficient.
- Transparency – Blockchain Technology works on the non-destructive ledger which means that there is an irreversible record of transactions in a sequential manner thus reducing risks and maintaining better transparency.
- Dramatic reduction is Asset Transfer Costs & Timelines – This technology gives an opportunity to banks to reduce their costs by a large percentage. In cross- border remittances, users get the best benefit due to the near real-time processing of transactions.
In Spite of such attractive benefits and such enormous potential of this technology, it has its own challenges whose problems are being addressed & researched upon. A few of them are as follows:
- Enormous Energy Consumption – Most importantly, this technology requires a huge amount of energy. Even more than the world’s fastest supercomputers.
- No international standard or laws – This technology lacks legal framework as of now globally. Some countries support it and on the other hand some countries are in a fix. Therefore it would be difficult to provide operational feasibility worldwide as of now.
- Security & Privacy – Data on blockchain is public, anybody can see it. Moreover, encryption in Blockchain can be broken through loopholes and people may find out new ways to manipulate data.
All these challenges are currently being studied upon so that the Blockchain is implemented with proper measures and improved care for the betterment of the whole society.
The Last Few Words
Everything in this world comes with its pros and cons and definitely the pros weigh more. Blockchain-based systems have proven to perform such operations in a better and an easier way. Therefore, it definitely has a huge potential to disrupt the existing methods and we would be one step closer to a ‘Cashless Economy’.
Once the regulatory framework supports the use of Blockchain, we won’t be far from witnessing yet another massive transformation in the Finance Sector. Thus making transactions even more secure, fast, cost-effective, and transparent.