Blockchain Technology

Banking and technology are very closely associated and innovations have changed banking drastically over the period of time. Banks across the world are in their digital transformation journeys and the focus now is on how to accelerate this journey, with Open Banking and API-led business models playing a key role, according to  Infosys Finacle, part of EdgeVerve Systems, a product subsidiary of Infosys. In its annual banking trends forecast for the year 2019 that covers banks in 100 countries, including India, the report predicts that technology and business outcomes will become more tightly coupled, as banks evolve their architecture for emerging digital technologies and new open banking realities.

One disruptive innovation which is changing the banking sector globally is Blockchain Technology (BCT). Blockchain technology is a new technology which is based on mathematical, cryptographic and economic principles for maintaining a database between various participants without the requirement of any third party or central authority. It is a secured distributed database, tamper evident, wherein the validity of a transaction can be verified by parties in the transaction. Each group of these transactions is referred to as a “block”. A Block records some or all of the recent transactions and goes into a blockchain as a permanent record once completed.

Blockchain technology, also known as the decentralised, distributed ledger technology, has gained visibility in India in the last two years and has started taking banking in India by storm. Blockchain is shared distributed ledger which stores business transaction to a permanent unbreakable chain which can be viewed by the parties in a transaction. Blockchain technology has the potential to disrupt the financial business applications as it provides permanent and tamper proof recording of transactions in a distributed network. 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. This technology has the potential to change the way financial service transactions are carried out.

The blockchain could potentially save banks billions in cash by dramatically reducing processing costs. Banks are keen to take the opportunity to reduce transaction costs and the amount of paper that they process. Implementing blockchain would be a step to making banks increasingly profitable and valuable.


All major banks are trying out blockchain which could be used for money transfers, record keeping and other back-end functions. The blockchain application changes the paper-intensive international trade finance process to an electronic decentralized ledger that gives all the participating entities, including banks, the ability to access a single source of information. It also allows them to track all documentation and validate ownership of assets digitally, as an un-alterable ledger in real time.


Banks in India are increasingly investing in blockchain 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, leveraging the distributed ledger technology. This apart from ensuring transparency in credit disbursement also removes any communication hurdle among the different banks. Federal Bank has 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. Banking community expects that with Blockchain, business can be conducted 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.

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 tremendous time and efforts 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.

Blockchain is expected to have a direct impact on reducing operational costs and improving efficiencies. Since the technology is still in its nascent stages of commercial deployment, banks are in the process of forming policies and procedures to ensure that personally identifiable information is always protected.

With blockchain technology still evolving, clearing the misconceptions created by bitcoins is one among the main challenges faced by the industry in adoption of Blockchain solutions.

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 many banks approach businesses in entirely new ways through is blockchain platform.



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