Currently, the way that loans, securities, and other account information is recorded are through a large and tangled financial web. This system costs banks billions of dollars to run and is dependent on old technology. Faxing is still the most used way to send important documents through the banking system. When you send money to another person’s account it has to go through multiple banks before the money is deposited. Accenture estimates that some investment banks could save $10 billion by using blockchain technology for clearing and settlement. This new system could mean that sending money, securities, and anything else would be faster, more transparent, and more efficient.

Diagram of the current clearing & settlement system

People may think that cryptocurrencies such as Bitcoin and Ether threaten to wipe out banks for good. But, many banks are using this new technology to create their own currencies that can be converted into physical currency at their banks. Even the Federal Reserve has looked into creating its own Central Bank Digital Currency (CBDC). Bank-backed cryptocurrencies could be more stable, secure, and less volatile. As a result, this could lead to more people getting started in crypto now that trusted institutions are backing it.

Banks play an important role in facilitating international trade deals. However, they still use the same system that has been described earlier. Faxed documents with physical stamps are needed to approve a transaction, and if anybody along the supply chain wants to see this information, it is a whole other process. This scramble to find order information happens often as over 50 people need to access this data in one shipping movement. The blockchain’s digital signature mechanism would solve this problem perfectly, as it would record the steps along the way and the different signatures that verify them.

Diagram of the current supply-chain system

In banking, verifying that customers and parties are legitimate is a crucial part of the business. Without this ability to verify, banks would lose the trust of the public as a whole. For years, banks have been trying to create a shared digital identity database for customers, but have run into issues with security. The blockchain is a great solution to this because of its one-of-a-kind cryptographic protection and decentralized nature. Currently, there are dozens of start-ups focused on customer identification on the blockchain.

Graphic of the current identity blockchain services

Loans are one of the biggest parts of banking and a large part of their revenue. However, some loans can take almost 19 days to be processed, an absurd amount of time for something in today’s world. Putting these loans on the blockchain is only a natural step in streamlining this system. However, one challenge that banks are working to solve is how different blockchains talk to each other so that loans on one blockchain can be updated on another. This is interesting because not only is the blockchain influencing banking, but banks are working to change the blockchain as a whole.