Blockchain technology was invented back in 2008. But now it is taking over the internet, technology, and even banking at a rapid rate.
The biggest question is as blockchain picks up more traction, will the traditional banking industry adapt to this new technology or be replaced by it?
We’ve already seen major financial institutes that have publicly announced interest in it.
French investment bank BNP Paribas has announced it will begin looking at how blockchain technology can be applied to its currency funds and for order processing.
Technology-focused stock exchange NASDAQ OMX Group Inc. has said it is working with blockchains to “reduce the time, costs, and points of friction across the capital markets.”
Those aren’t the only examples. Goldman Sachs along with a few other major banks expressed interest as well.
A deep look at how blockchain can disrupt traditional banking
Blockchain will undoubtedly have an effect on virtually every aspect of the financial system. Let’s take a closer look at the different aspects of banking that blockchain can disrupt.
Payments – One of the core models and functions of a bank is to store, transfer, receive, send, and process payments. By eliminating the need to approve transactions between consumers, blockchain technology could push forward faster payments at lower fees than traditional banking technologies.
Traditional loans – In today’s world, securing a car loan or mortgage can take more than a month’s worth of time. Imagine securing that loan alnost instantly along with a solid contract in place. With blockchain technology, we won’t need underwriters and credit checks to be in place because we will have smart contracts that can handle a lot of the repetitive work for us.
Clearing and settlement – Let’s take trading stocks for example. Normally it would take T+3 days to settle the sell order that you made, but with blockchain, this can almost be instant without any settlement time.
Overstock is a perfect example of this. A while back they announced it was developing a blockchain-based asset exchange called T0 in order to directly issue some of its corporate bonds to investors.
Another Bitcoin exchange under the name of Coinsetter also announced that it will roll out a blockchain-based platform to clear over the counter transactions which can be settled in 10 minutes.
With Blockchain settlement, can happen instantaneously. Banks estimate that nearly 20B could be saved using Blockchain technologies for clearance and settlement.
Account deposit and withdrawals – Most consumers keep a majority of their money in their bank accounts, but what most consumers don’t know is what banks actually do with your money after you deposit it in your bank account. Once you deposit money into a bank account, the bank loans most of it out via their reserve banking.
This is why there is usually a huge panic when consumers want to withdraw their money at once and causes banks to panic as well.
With blockchain, traditional banks will be able to have alternative solutions to when the panic arises because the blockchain is ultimately a ledger that represents accounting entries.
Blockchain companies that are disrupting traditional banking
Just like startups, blockchain companies are looking to create innovation and make an impact with traditional fintech and banking.
One of the biggest benefits of traditional banks using blockchain technology is that it is way more cost effective.
Take Bitpay for example, a Bitcoin payment service provider that helps merchants accept and store Bitcoin payments. BitPay has grown its payments volume over 350% in the past year, with merchants receiving more than $100 mil per month. With a company like Stripe that also processes payments, BitPay charges 1% per transaction, whereas Stripe charges close to 3%.
If traditional banks adapt to this type of blockchain technology, they can reduce their cost massively.
Another example of this is the cryptocurrency TenX. TenX is a platform that consists of a wallet, physical debit card, bank account, ATM access, and more.
Overall, the company wants to introduce products that make it easier for you to use your cryptocurrencies in the “real world”.
The main advantage of TenX is that it offers free spending and exchange fees. That comes with a 0% fee. The only fee that would need to pay for is their physical cards.
The platform itself supports Bitcoin, Ethereum, and DASH.
The platform allows you to use blockchain assets with the same convenience like your local currency. This will allow you to send money across the globe at an extremely fast and secure way with no fees.
We can’t write an article on blockchain disrupting traditional banking without mentioning Ripple (XRP).
Let’s say you want to transfer money overseas to a family member that’s in need. The process for traditional banking will be to go through their SWIFT system.
The centralized SWIFT protocol doesn’t actually send the funds, it simply sends the payment orders. The actual money is then processed through another system. Each order adds additional cost to the transaction and creates a risk of failure.
The blockchain, which serves as a decentralized “ledger” of transactions, can completely disrupt this state of play and completely remove the SWIFT system.
This is where Ripple comes in. It is looking to partner with banks to eliminate SWIFT for faster clearance.
Ripple’s current product provides banks with a faster, two-way communication protocol that permits real-time messaging and settlement. This isn’t just a “gimmick” or a “theory”. Ripple has already partnered with over 100 banks mainly in the Europe region to implement this blockchain technology.
A competitor of Ripple, Stellar, is looking to do something similar. Stellar was originally apart of Ripple however, it is not anymore. Stellar is the direct competitor of Ripple, it does that same pathfinding of best cross-asset combinations, but there are differences in the consensus algo, how both are offered.
Blockchain is still currently in its early days of growth. It is still slowly being adopted by average consumers and the traditional banking industry, but it is here to stay.
Most people believe that blockchain will eventually take over and disrupt the entire banking industry. Some others believe that blockchain will just be a “support” and an addition to current traditional banking solutions. Regardless of which path blockchain ends up on, we will see an impact and change in the banking industry with upcoming blockchain solutions.
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