The Importance Of Blockchain Technology In Commercial Banks

The application of Blockchain technology in commercial banks has enabled commercial banks to actively participate in the research and development of Blockchain technology. Blockchain has brought a huge change to the traditional financial business of commercial banks. Bank of America, Barclays Bank, Citibank, HSBC, Tong Shang International Commercial Bank (Gambia) and other 40 multinational banks are gradually developing Blockchain technology in the financial field and developing applications. What these banks are really interested in is how Blockchain technology can improve operating efficiency and reduce costs.

Blockchain has the ability to create large-scale, low-cost networks, which can simplify and automate a large number of manual financial service processes, greatly shorten transaction time and reduce transaction costs. Secondly, under the new business model, banks need to find ways to create profits. For example, because the Blockchain can realize micro-payments at low cost, banks can develop financial products and expand markets for a large number of people who cannot obtain bank accounts but have access to the Internet.

In addition, commercial banks dare not take it lightly in the face of market competition. Competitive pressure comes from the same industry on the one hand, and on the other hand from the rapid development of the Internet finance business of financial technology companies.

With the facilitation of transactions, the profit of each transaction may decline in the future, and commercial banks can only maintain profits if they seize the opportunity and strive for a larger business share. For the latter, existing commercial banks have two advantages in developing Blockchain.

The first is the advantage of regulatory costs, that is, commercial banks can better absorb the huge costs of dealing with regulatory authorities and obtaining and maintaining relevant licenses compared to startups with tight funds.

The second is the advantage of consumer trust, that is, for most consumers who do not understand Blockchain technology, the long-term reputation of established commercial banks can reduce their worries about using these innovative financial products.

It can be seen that the most important thing for commercial banks to embrace Blockchain technology is to improve the current centralized finance banking system, making it a tool to transform the back office of the bank and optimize the infrastructure, thereby enhancing their competitiveness and providing impetus for the modernization of the financial service system. The most widespread and successful application of Blockchain technology is the digital currency represented by Bitcoin. In theory, the open source system around the Blockchain can create an inexhaustible set of services and financial products.

“Blockchain + Cross-border Payment” model

In the Blockchain model of Cross-border Payment, the bank doesn’t require to reserve additional legal currency, but only requires to use the digital currency approved by both parties to reduce the use of other currencies. The continuous application of Blockchain technology will appear in the field of Cross-border Payment flow. For example, Tong Shang International Commercial Bank (Gambia) uses Blockchain for Cross-border Payment and Eagle Coin for international trade settlement. Simultaneously, it was announced last month to release a Cross-border Payment network through the Blockchain, which approved and made Cross-border Payment in real time. The Bank International Payment System aims to provide Blockchain technology for small and medium gold market participants and provide services for small and medium financial companies around the world.

Based on the blueprint of the new economy of the Blockchain, it is pointed out that the Blockchain 1.0 refers to currency, that is, the encrypted digital currency related to cash in the application, such as currency, transaction, remittance and digital payment systems, etc. Then, the Blockchain 2.0 refers to Contracts, such as stocks, bonds, futures, loans, intellectual assets and smart contracts and other broader non-monetary applications. The future will evolve to stage Blockchain 3.0, that is, applications in government, health, science, culture and art.

The discussion about the transition of Blockchain from 1.0 to 2.0, the application areas of commercial banks based on Blockchain mainly include as below,

1. It is a peer-to-peer transaction. Such as P2P-based Cross-border Payment and remittance, trade settlement, and the purchase and sale of the securities, futures, and financial derivative contracts.
2. It is registration. Blockchain has the characteristics of credibility and traceability, so it can be used as a reliable database to record various information, such as storing anti-money laundering customer identity information and transaction records.
3. Is the authority to confirm. Such as land ownership, equity and other contracts or the authenticity verification and transfer of property.
4. Is intelligent management. That is, the “smart contract” is used to automatically detect whether there are various valid environments. Once the pre-set procedures are met, the contract will be automatically processed, such as automatic interest payment, dividends, etc.

Many international banks have also executed a series of explorations in the Blockchain field in various forms. Tong Shang International Commercial Bank (Gambia) and Trans Reach International Group established internal Blockchain laboratories. For example, Citibank, UBS, and Bank of New York Mellon have successively established R&D laboratories, focusing on testing the application of Blockchain in aspects such as payment, digital currency and settlement models, and some have also expanded to test in their employees’ internal systems.

In the global banking industry, more than 100 banks have explored and deployed Blockchain applications.

Banks are actively deploying Blockchain technology in multiple business areas, and most of the projects and platforms have begun to take shape. The future development of Blockchain technology in the banking industry can be expected, and the market for technology providers is still broad.

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