Blockchain Should Not Be Considered Replacement of Bank’s Payment and Messaging System

Blockchain and Banking (BnB) are now engaged after a long courtship. Global Banking leaders

have started figuring out the auspicious date of BnB marriage. This marriage is going to be

soulful as after long deliberation by Global Banking and Financial Services leaders have

accepted more or less all the attributes of Blockchain (typical Hindu marriage process). Once

married it’s going to be catholic marriage wherein only death of either one can separate.


History behind this marriage is technological progression which directed towards an opportunity to explore and reconstruct the business models. Globally incumbents introspected and realized that there will be a collateral damage by disruptors on traditional business models. Blockchain will define the new business models for businesses across all industries whether it is banking, healthcare, music streaming, real estate, insurance, publishing etc.


Blockchain, the shared and distributed ledger technology, has tremendous potential to change

business operating model. Shared, distributed and replicated ledger helps the incumbents to

have a transparency, trust and accountability between the participants which is peer to peer

(P2P). Ledger technology (Blockchain) should not be considered as replacement of payment

and messaging system of a bank, instead it will augment the networks on a trust and subsequently execution of transactions. This will in turn reduce costs, complexity of transaction,

time to execute the transaction and enabling trust for banks and financial services. Blockchain is

a secure transaction ledger database shared by all parties in a distributed network, which

records and stores every transaction that occurs in the network, creating an irrevocable and

auditable transaction history.


Blockchain will be a self-sustainable framework and a tool for any industry. And banking would

be one of the biggest beneficiary to start with. Banking should start unleashing the power and

potential of Blockchain. Banks across the world are using similar database/s maintained

separately in isolation by each bank, that’s an unrealistic cost in terms of technology as well as

processes. Blockchain will converge banking into universal database cutting across redundant

processes and converging systems closer. Blockchain will throw open opportunities for people

and organization/s to start their setup without investing heavily on the infrastructure. Emergence of new banks can happen without investment in infrastructure and just latch on to the existing setup of Blockchain.


Emergence of Blockchain will disrupt each and every part of banking setup.


Retail Banking: Cross party transactions will see a major shift in banking. Underlying Blockchain will support decentralized distributed ledger which anyone in the network can see and approve. Cryptography and replication helps in making a transaction secure. Network actually here is chain of computers validating and approving exchange before transaction is recorded. Peer to peer transaction will have a major shift in terms of establishment of trust. Blockchain will eliminate multiple parties involved in transactions in creation of trust across any

border/s. Upfront use cases where global banking should start piloting is on retail loans,

bancassurance, saving and current account opening’s KYC (know your customer) process, this

will make lot of paperwork, internal validation process and trust will be created for ever.


Recordkeeping will be eliminated completely or with minimal presence which will save tons of

expense and costs. Similar processes for car and home loans in terms of KYC can be made

redundant if it is blockhained, as once the trust is created, repetitive threads can be eliminated.


Smart contracts are another use case banks can start the pilot. Smart contracts will facilitate

banks with common contractual conditions (such as payment terms, liens, confidentiality, and

even enforcement), minimize exceptions both malicious and accidental, and minimize the need

for trusted intermediaries. This will turnaround inefficiencies and return value. Investment

banking can extrapolate the smart contracts to reap the benefits of Blockchain.


Banking Mobile wallets is another use case where Blockchain has a potential of disruption.

Wallets can use underlying Blockchain setup for peer to peer transaction electronically.

New retail banks can smartly enter into banking setup/ industry without investing on huge



Clearing and Settlement


Implementation of Blockchain in clearing and settlement will save at least USD 20bn per year

according to some industry estimates. Blockchain will make clearing and settlement processes

of balance reconciliations/s, end of day processes, reconciliations with central authority etc

redundant. This will have a huge impact on almost all industries viz global trading, investment

industry, pension funds, asset management as clearing and settlement will be near to real time.




Peer to Peer lending will take a new shape with Blockchain. Convergence of global communities

into a setup of Blockchain which will soul of trust, transparency and accountability. Peer to Peer

Lending with banks will enable trusts as well. SME lending is one of the most concerned areas

for banks for lending due to lack of transparency and trusts. SME lending through Blockchain

will enable banks with trust, accountability and transparency with high level controls on NPA’s.




Payment world will see a major shift as companies will offer Blockchain as a service to support

any local and global bank to bank transactions. If digital currencies are regulated and legalized,

then payment industry will have a rebirth.


Trade Finance


Use Case where banks can immediately start the piloting is on trade finance. Banks should

leverage the power of Blockchain into financial supply chain. Information flows of Letter of

credits, bill of lading can be powered through Blockchain to establish trust between parties and

subsequently bank will save huge amount of costs.


Blockchain will have its challenges in terms of implementation and adoption, but early movers

will have phenomenal advantages. It will impact bottomline first and subsequently throw open

the doors for new business avenues and models for revenues and create a dent in the overall


Categories: Digital

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Anshul Srivastav

Anshul Srivastav is CIO of Union Insurance Company P. S. C....

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