The topic of blockchain has probably come up in conversation more than once over the past several months.
You might be wondering why blockchain is exploding in fintech right now. What does it mean for community banking? As far as industry buzzwords go, blockchain is one that can cause some confusion. Fortunately, we’ve got your back.
We’ve compiled five of the most frequently asked questions we receive about blockchain for banking and asked Core10 VP of Technology Joel Legg to share his thoughts. Here’s what he had to say:
JOEL: The blockchain is an immutable ledger. It’s a digital record that can’t be changed once it’s written. This means everything that’s written to it is essentially written in stone.
It’s also decentralized. It’s public data that can be shared, and it’s not controlled by any single authority.
For the technical, this combination opens a lot of possibilities. For those not technical, it’s exciting because it allows us to store data, exchange value, and record transactions. It makes the secure sharing of data between third parties a lot more trustworthy because everyone in the network has an exact replica of the data to verify against.
JOEL: Think of it as the difference between sending a written document from New York to Los Angeles through the postal service versus sending the same document via email. Technology has enabled us to reduce time, risk, and cost, while increasing transparency throughout the process. That’s what blockchain can bring to community banking and other industries.
Not only does blockchain eliminate the middlemen, but it also establishes trust and brings transparency into everyday transactions. The security and transparency blockchain brings to the table are part of what’s empowering a whole slew of inventions, including cryptos, smart contracts, web3, and NFTs.
JOEL: Since it uses infrastructure that’s already in place, blockchain technology can eliminate or lower fees. That savings can add up fast. For example, The Motley Fool projects that blockchain can save banks $27 billion (yes, with a B) on international transactions by 2030.
It’s no secret that banks are a frequent target for fraud. The transparency and security provided by blockchain’s immutable digital ledger offers bank customers a level of assurance not seen before.
Transaction speed improves with blockchain as well. Processes that typically take days can be reduced to minutes.
JOEL: In the short term, experimenting with blockchain can help banks stir innovation and customer service improvements on a small scale, even if an industry-wide rollout is further down the road. Plus, those that take time now to sort out regulatory processes and compliance issues will be less likely to struggle while the later adopters get up to speed.
In the long term, overall, blockchain will drive the kind of efficiency and transparency that brings groundbreaking innovation. As I said before, it’s empowering tons of invention and creative problem-solving. Long term, there’s tremendous potential.
Those banks that aren’t at least experimenting with the technology stand to lose the most. Market volatility when dealing with crypto is a concern, but some banks and fintechs have found ways of mitigating the risk while staying in compliance with government regulations.
JOEL: Retail banking customers will benefit most from faster, more secure, less expensive money transfers and direct payments. Ultimately, blockchain technology will make it easier for community banks to make life easier for their customers. With blockchain as the backbone, community banks will be able to offer higher service and security levels than ever before.
For retail banks, crypto management and trading will be the biggest value add for retail banking platforms. Another big value-add will be leveraging blockchain to create a peer-to-peer network. This network would be managed by and shared between banking associations and could be used to verify identity, move funds, and enable innovation.
Although the development of blockchain is still underway, its potential for application in banking is exciting. As more and more banks test the waters and discover potential applications, the more we see its advantages.
If you’re curious about what blockchain can offer your bank, Core10 is happy to answer any questions. We’re all about keeping our customers ahead of the curve. Schedule some time with us or find out more about what we offer here.