Blockchain technology is well known to cryptocurrency aficionados as a highly secure ledger system designed to protect the integrity of digital asset transfers and ownership. Blockchain is taking off in other industries, including medical records, governmental records, and traditional financial service businesses. In this article, Rory Brown discusses why virtual banks are interested in blockchain technology and how it could change the way they do business.
Blockchain Combats Fraud and Cyber Crime
Traditional banking systems have been built on a central database owned and managed by a single institution. This structure presents risk of loss if the database is compromised by hackers or cyber attackers, and requires constant monitoring of the integrity of the central system. If a central database is accessed, criminals are likely to have access to all financial information and the ability to alter account information. Blockchain is a distributed ledger system where every block on the chain contains individualized records of every transaction and cannot be modified. Distributed record keeping on a blockchain is virtually invulnerable to alteration or unauthorized access.
Blockchain Tech Enhances the Effectiveness of Money Transfers and Lower Reliance On Cash
Traditional money transfers between banks are inefficient and costly, even in the internet age. International transfers usually face even higher costs and time delays. Blockchain dramatically reduces the cost and increases the speed of transfers everywhere in the world. With blockchain technology and eWallet capabilities, virtual banks can avoid the expense and delay of going through payment clearing house facilitators. Blockchain technology also supports cost reduction through less reliance on cash transfers, as many central banks are considering using blockchain digital currencies in place of ordinary money. Virtual banks will be able to use blockchain technology to seamlessly link accounts between various financial institutions and third-party payees.
Virtual Banks Use Blockchain to Simplify and Strengthen Compliance With Regulations
In the last two decades, the cost of compliance with Know Your Customer and related regulations has steadily increased for all types of financial institutions. Advancements in blockchain technology will allow virtual banks to reduce the costs involved in Know Your Customer compliance significantly. Distributed blockchain record-keeping can allow a virtual bank to accurately identify a single customer according to regulations. That verification can, in turn, be used by multiple companies required to comply with Know Your Customer regulations, saving time and money for both virtual banks and customers.
The unprecedented levels of security and accuracy provided by blockchain technology will continue to promote overhead efficiency for virtual banks. Blockchain use also eliminates the need for many types of costly third-party processors. The lower overhead expense incurred by virtual banks is at the core of the industry’s competitive advantage over traditional brick and mortar banks, and blockchain will strengthen that advantage.
About Rory Brown
Mr. Rory Brown has focused on financial technology and investment management for 30+ years. Rory Brown Co-Founded one of the world’s first Internet Banks and writes extensively about the industry.