Disruptive Technology has in the last few years altered significantly the operations of many business and industries. This happens when more superior habits of doing things that come along with the disruptive technology are introduced in the current system and replaces the common habit of doing things. Backdated to 2008, Blockchain technology is a form of disruptive technology that is bringing changes in operations of the businesses especially in the banking industry.
Blockchain technology comprises currency values such as Bitcoin, Dogecoin and many other currencies that are powerful, secure anonymous and open to anyone that may need to use them. With the technology that is associated with Blockchain, it can offer a database that keeps track of every transaction that takes place over the currency values such as bitcoin. The decentralization and transparency features of Blockchain such as the availability of the transaction details metadata in public ledgers that are easily accessible make the technology have a great impact on the banking system.
The banking system handles millions of funds transfer on daily business from one area to another in the world making it an area where Blockchain has impacted in terms of operation. The sector is benefiting from the application of Blockchain technology due to its proneness to errors and fraudulent transactions. This has led to the move by Fintech institutions to adopt Blockchain as a form of transaction. This is because Blockchain technology in banking system has the potential to outdo the need for the manual processes involved in the banking fund transfer system by replacing it with the secure transaction and assuring the clients safer ways of fund transfer which does not even involve as much transfer costs as those used in banking systems.
Although Blockchain technology was not well accepted in the banking industry, the theory is changing and the technology is now well accepted. This has been mainly connected to the success rate of Blockchain technology in many industries. Large banking institutions such as JP Morgan have shown interest in Blockchain with the American multinational investment bank setting up a whole division they named Quorum in New York to perform research and implementation of Blockchain technology specifically. Reasons for implementation of the technology include;
Saving on transaction costs
One of the reasons as to why banking is adopting Blockchain is because of its ability to enable banks to save a lot of money in terms of transaction costs. Normally, fund transfers from one region to another involve certain costs due to currency variations from one region to another and involve some paperwork. Since Blockchain is offering this option of transfers without these costs and paper works, banks are keen to grab this opportunity. This has been the source of the wave of Blockchain implementation by the major banks since the saving transaction costs will result in millions of extra profits.
Reduction of fraud
Another reason for the heavy jump-in into Blockchain technology in the banking system is because of the rate at which the normal transactions are exposed to fraudulent activities. Blockchain will achieve this through the removal of intermediaries. Over 50% of money laundering is said to happen within the transaction system where intermediaries such as stock exchange play a big role in this. Therefore, the technology is estimated to have a great impact on the banking system where it will also protect the bank against the chances of cyber-attacks in the banks’ database.
The new set of millennial customers
While clients are changing, today’s and future generations are expected to rely so much on technology. Currently, the young clients’ generation is growing in a well-networked environment with a lot of knowledge in crowdsourced funding and online transactions. These have made the banking industry to adjust to Fintech to be able to deal with these millennials by adapting and adjusting to Blockchain technology in their system. This will enable the millennials to perform their business transactions without the intervention of the so-called ‘big boys’.
These activities mainly compose of paperwork transactions in the banking industry in transactions such as billing and factoring with also some international transfers in exports and imports. This area is seen to be most efficient when transactions are done over Blockchain Technology. Movement of these transactions, especially worldwide can be quickly accelerated using this technology under the smart contracts that digitize the transactions and also prole the role of documentation.
It is therefore expected that Blockchain technology will continue to impact the banking system due to the increase in innovation in the Internet of Things which is revolutionizing many industrial sectors.