For the past few decades, traditional banking institutions have faced several major problems. Even in 2018, many banks haven’t found an efficient way to deal with issues like payment clearing inefficiencies, consumer fraud and the general limitations of fiat currencies.
In this piece, we will discuss these three issues and explain how banks can utilize blockchain as a go-to solution. We’ll also look at some of the ways Ivy specifically is reshaping the future of banking and the role of digital payments in the global economy.
Issues Traditional Banks Face Today
The following are just a few of the many issues that traditional banks and financial institutions face today. Even though these problems have existed for decades (or even centuries in some cases), we have yet to see the technical innovations implemented that could mitigate or eliminate them.
Inefficient Payment Clearing Processes
One of the biggest roadblocks modern banking face today is how to clear payments quickly whilst also following regulatory procedures. When we look at the number of payment clearing options available in 2018, there isn’t all that much difference to the options that were available in 2008.
In the US, for example, same-day ACH is likely considered to be the biggest improvement during this decade-long timeframe. Meanwhile, only in recent years have we begun to see an emergence of cross-border fintech applications that reduce payment clearing costs and wait times. For the most part, we are still stuck with old architectures that lack innovation and efficiency.
Inability to Stop Fraud
Fraud detection has always been notoriously difficult to stop. Unfortunately, this remains the case even today. Despite an increase of available identity fraud detection systems, banks are still unable to prevent such security threats.
For banks, this leads to financial losses in cases where additional funds have to be allocated and paid out to the fraud victim. For customers, this can mean less trust in the bank as well as damage the way an individual or business perceives the bank-customer relationship. Additionally, customers often have to wait significant periods of time to receive a new bank card. In 2017, the cost of all of the data lost due to identity theft amounts to $16.8 billion.
Limited Number of Currency Options
Fiat currencies are limited by factors like geography and a lack of competition. When we think about people using fiat currency around the globe, we have seen a steady move toward standardization over time. However, this presents some risks for banks and citizens. For example, a heavy reliance upon a single national currency’s success or failure relies upon factors like economic growth and monetary policy. Any small issue increases risk for businesses and other nations from around the globe.
For example, 28 nations have experienced rampant hyperinflation during the past 25 years. In some cases, not only did banks fail but also entire economies collapsed. Because there were no other currency choices, the problem couldn’t be easily avoided. Even today, this process continues to happen in many locations globally.
Benefits of Blockchain Over Traditional Systems
Here are a few ways that blockchain can reduce or even eliminate the above-mentioned issues for banks and other financial institutions.
More Efficient Approval Systems
When compared to traditional payment approval processes, many blockchains are already far more efficient. For example, instead of waiting days for payments to go through clearing houses, a well-designed blockchain is able to complete the verification process in a matter of minutes (or even seconds) in a lot of cases. More importantly, blockchain also offers a more secure option.
With innovations like KYC and KYT data for financial transactions conducted via blockchain, banks can actually be far more capable of preventing finance-related crimes. This means that traditional finance can comply with laws for AML, ATF, and more. In addition, transactions that are legitimate can be approved at a lower cost to financial institutions.
No More Fraud
While fraud seems like it has and will always be a pervasive issue in society, this doesn’t have to be the case. Blockchain offers the ability to change the way in which people prove identity and access services.
Essentially, instead of having to wait until after the fact to stop a case of fraud, blockchain can ensure issues like identity theft are stopped before they ever happen. Additionally, because blockchain transactions are immutable, we could also see a drastic reduction in issues like the counterfeiting of paper currency and consumer products.
Increased Digital Payment Options
While blockchain has many use cases beyond just financial transactions, this is clearly one of the best examples of how technology can change finance and the global economy. In the early days of crypto, there was really only BTC. Now, however, there are a range of coins and tokens that serve important purposes.
One of the biggest misconceptions is that crypto and fiat payment systems have to be direct competitors. In reality, by creating a blockchain protocol that links fiat and crypto, businesses and consumers can have more, higher-quality market choices and use cases for crypto in finance and other areas. At the same time, financial institutions can serve an important role in the future of digital payments, fiat-crypto currency conversions, and more.
Ivy’s Role in the Market
Ivy is actively working to bridge the gap between fiat and crypto financial markets. By recognizing the various needs of financial institutions and businesses, we are able to develop a blockchain protocol that can be highly effective as a real-world solution for traditional finance’s current problems.
One of the ways we aim to improve the efficiency of payment approval processes is through the utilization of smarter, more comprehensive transactional data points. As a result, Ivy provides banks with many advantages over traditional payment networks, like better fraud detection and simplified regulatory compliance. We are also working on cross-industry collaboration to build applications like IvyPay, which will provide an easy-to-use solution for both fiat and crypto payments.
To find out more about the project’s technical features and use cases, click here to read our whitepaper.
Ash Shilkin is the President of Ivy, a fintech start-up creating blockchain-based solutions for payments, verification & compliance.
The post The Role Of Blockchain In Traditional Banking: Challenges And Possibilities appeared first on ValueWalk.