The transformation to “The Blockchain Bank“ must be initiated and advanced now. Only then will a traditional financial service provider be able to secure their place in the future.
Why Blockchain for Banking now?
At banks, the savings potential appears to be exhausted without shortcomings on the part of quality and accessibility. Banks can hardly afford to reduce the quality and availability of their systems and services. If a bank could manage to operate their processes more efficiently and make their services more automated, it would bring that bank a crucial advantage.
Blockchain can provide the appropriate support.
Diverse Start-Ups from the Fintech Branch have proven that Blockchain works and can bring added value. These Fintech companies are “ready” and sharp set on the customers and processes of the banks. It is time to set the course and adapt the organization, processes and culture of the banks to Blockchain.
The Blockchain-Bank
How can banks be suitably prepared for technological innovations?
– The culture of the bank must openly embrace “New”. Innovation must be a part of the bank’s strategy and exemplified by management.
– The bank must implement innovative ideas in an organised fashion.
– Processes must have clear responsibilities.
– Every single employee is familiar with and contributes to the innovation strategy of the bank.
In order to test/implement Blockchain, one should be familiar with the USPs of Blockchain in banking:
| Blockchain-USP | Description |
|---|---|
| Direct Transaction | Blockchain enables values to be transferred and transactions to be performed without any additional points in between |
| Currency for diverse values | With Asset-Centric-Application, cryptocurrency is covered by real goods (for example Stocks, Cars) |
| Fastest possible transaction network | Since no intermediary is needed for transactions, faster payments and transfers are possible |
| Guaranteed Performance | Only when all parties are in agreement are transactions completed. This is stored irrevocably in the block |
| Traceability | All transactions are stored (Hyper Ledger). The overall history of the Blockchain is accessible to everyone who is part of the network (Node) |
| Decentralised Network | Every computer and therefore every data bank is theoretically available. The decentralisation makes 24-7 operation possible |
Where Blockchain can help Banks
There are several areas of application for Blockchain, depending on size and activity of the bank. Below are some areas where Blockchain could support banks:
| Area | Advantage | Disadvantage |
|---|---|---|
| Peer-to-Peer-Payment | - Fastest possible payments - Theoretically possible without transaction costs | Only possible with a consenting opposite party |
| Micropayment | - New business segments possible - New settlement models possible | Distributed Denial of Service (DDOS) |
| Direct-Trading | - Fastest possible execution - Liquidity of the bank and customer is increased | Limited asset universe |
| Currency Exchange | - Fastest possible execution - Execution without spread | Limited currency variety and amount |
| Asset Management | - Time to market - Re-offer cryptocurrency products | - Product is not listed on official trading centres - Regulator is still unknown |
| Digital Certificate | - Less expensive processes - Faster processes - No physical signature needed | Accepted as a valid form |
| Mortgage-Online+ | - Less expensive processes - Faster processes - No physical signature needed | |
| Smart-Product | - Products are guaranteed pictured correctly | Exceptions are costly to arrange with Smart-Contracts |
| Datastore on Demand | - Only pay for what is needed - Geographically independent infrastructure | Replacement of the current Legacy Systems is a big challenge |
| CPU on Demand | - Only pay for what is needed - Costly processes can be carried out in a flexible time span | Replacement of the current Legacy Systems is a big challenge |
Weakness of Blockchain
Despite everything, Blockchain also has its problems. There is the volatility of cryptocurrencies, which does not actually promote trust in a product.
“A cryptocurrency must be accepted by the masses so it can develop its revolutionary potential.“
In addition, the transaction costs from conventional payment service providers like Mastercard and Visa can hardly be handled by the current Blockchain. Because of this, the danger of DoS-Attacks disabling the system is quite large. The use of computing power should not be underestimated. The miners today constantly utilise around 300 megawatts of energy. This is on par with an average nuclear power plant running for four months. The existing Legacy System in the bank branches are making the integration of new systems and technologies difficult.
The new World of Blockchain-Bank
Next to the existing areas of a bank, new opportunities are opened thanks to Blockchain.
Physical Asset Registration: The registration of properties or assets can be managed distinctly and irrevocably. Works of art, estates etc. are specified and assigned. A security that banks can utilise. When diamonds or jewellery inherited by means of a will can distinctly be assigned, and the authenticity and value of the asset confirmed, this can serve as security for the banks. For example, for an inherited Rolex watch, a personal loan can be given.
Process Efficiency: The processes of the bank and also of intermediaries (provided they are still necessary) can be redefined by the implementation of Blockchain technology. The execution of processes will be greatly simplified and automated. So-called Smart-Contracts copy contract details and can be appropriately used for future programs or transactions, depending on the definition. For example, by cancelling an instalment payment, all account relationships of the customer can automatically be closed.
Data Analysis: Blockchain is a decentralised and worldwide available network. A user with a corresponding “Wallet“ is in the position to make appropriate transactions and utilise the services offered in Blockchain. The more companies that offer payments, outside services with the help of Blockchain, and their cryptocurrency, the more the customer can utilise Blockchain. Access to Blockchain is possible for every member and therefore the entire history of all transactions is also accessible. Say hello to Big Data.
Conclusion
The different insights and influences of Blockchain have shown in which direction development will go. Traditional banks must prepare for a transformation in order to convert to a “Blockchain Bank“, using the latest finance technology. “The Blockchain Bank” is synonymous with a bank that sets technological trends and continuously tests these. Whether or not Blockchain will now have the often “hyped“ disruptive effect remains to be seen. The fact is that the banking world has greatly changed and will change because of technological achievements. This transformation means much complexity and leads to higher costs. However it also means that a bank can secure its place in the financial market of the future. Traditional banks could thereby keep their own offering and possibly improve by unlocking new areas.
The bank of the future will not only be driven internally, but will also be influenced by external developments.
The transformation to “The Blockchain Bank“ must be initiated and advanced now. Only then will a traditional financial service provider be able to secure their place in the future.
Note: The article corresponds to the author’s personal opinion and does not have a scientific claim.
