What comes to mind when you hear the word “blockchain”? Bitcoin? A bubble where people buy coins and tokens and sell them hours later for 100x what they paid? Or a genuine technology with the potential to change the world as we see it? How can blockchain technology improve an already important system: smart cards?
A blockchain is an increasing docket of records, also known as blocks, that are connected through the art of cryptography. The blockchain is built as a decentralized, distributed and often public ledger that records all transactions while being unalterable.
In a blockchain, participants can verify and audit transactions independently without much cost. These unique features of blockchain are being researched upon to provide many benefits such as security and speed.
Blockchain technology has important applications in many industries, especially banking and finance. Areas of banking that blockchain technology can be applied to include payments and remittances, stock exchange and financial markets trading, trade finance, lending and credit reporting, as well as investment management.
As physical, electronic authorization devices, smartcards or chip cards, also known in some circles as integrated circuit cards are needed to gain access to – and control a resource/resources. Most smartcards are sized like credit cards, have a plastic feel and a fixed integrated circuit.
Smart cards have performed several functions. Smart cards have chips with embedded data that can be read by machines and devices. The vast amount of data that can be stored on smart cards make them very suitable for several uses: payments, access control, identity verification, etc. The smart cards have microprocessors that allow them to function as a computer and perform complex transactions. The computational capabilities of smart cards make them suitable for blockchain applications, especially in modern banking.
Modern banking activities such as account opening, withdrawals, transfers, trade finance, loans, and repayment can all be made more efficient by putting them on a smart card device powered by blockchain technology. Smart card technology can improve the security of banking services on offer. Cardzgroup has expertise in producing these types of smart cards.
How exactly can smart card and blockchain technology be deployed in banking? Some use cases would be discussed below:
With the help of a smart card and a blockchain, better asset registry solutions can be designed for banks, deposit, and trust companies. The blockchain is immutable and as such, security is guaranteed.
Instead of using conventional software or spreadsheets to record the ownership of assets, the information can be encoded onto smartcards issued to customers. If the customer sells the asset, it can automatically update ownership to the new owner’s smartcard. It can be used for land titling and registration, share ownership registration, and retail inventory tracking.
KYC/AML and Identity Verification
Know Your Customer and Anti-Money Laundering regulations are in place for banks in most countries. However, verifying customers’ identity and preventing money laundering are serious challenges for financial institutions. With the aid of a blockchain integrated smart card technology and in collaboration with government agencies, smart cards can be used for identity verification with the data fed into the banks to assist in anti-money laundering monitoring and due diligence.
Smartcards and blockchain together create a digitally secure application for the storage of digital and electronic currency assets. The smartcard can be used as a user-controlled hardware to protect electronic vaults where assets have been stored. Given the increasing amounts of attacks by cybercriminals, this is an important application for the banking industry to consider.
Retail stores can use smartcards to receive payments in cryptocurrencies such as Bitcoin and Ethereum. Already, several banks have introduced these types of solutions to their retail customers. Smartcards can also be deployed as a tool for contactless payments by customers at retail stores.
Interbank Funds Transfer
Blockchain technology can provide a ledger that monitors and complete interbank transactions without the need for intermediaries. Services such as Bank to bank transfers, personal transfers, remittances, Business to business transfers and bill payments are currently conducted through intermediaries. Blockchain technology helps to lower the cost by disintermediation. The smartcard would offer a physical basis for these transactions as customers can complete transactions with their smartcard while enjoying the lower costs of blockchain based disintermediation.
Banks are the engine of international trade. A cocoa exporter in Ghana would not be able to sell cocoa to a chocolate manufacturer in the Netherlands if there are no banks to manage the transaction.
However, banks have often been very inefficient in managing international trade. Blockchain technology would help in trade settlement and trade finance. Smart contracts allow businesses to automatically trigger commercial actions based on predetermined criteria. Removal of complexity, efficiency in time, provision of an audit trail and reduction of cost of transactions are some of the benefits of blockchain technology in trade finance and settlements.
The benefits of synergizing blockchain technology and smartcard technology are myriad. With the aid of a blockchain powered smart-card, an expat worker in Canada can send funds to his home country in Africa with the click of a button at less than the current cost of remittance.
A government can record the list of landholders without anybody being able to make undue alterations to the information. A shopper would have no need to carry credit cards when shopping. Simply, swipe the back of your phone to the shop’s smart card.
Banks can use data from a smartcard to decide when to lend money and also automatically get repayments from borrowers. Given the needed support and resources, smartcards and blockchain would together transform banking.