Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members


The blockchain is an exciting new technology that can bring a fundamental change in  retail banking operations, enhance security, and can improve the overall quality of financial services. Already infrastructure providers, governments, and investment banks are experimenting with the technology since it can improve transparency, enhance efficiency, and also reduce costs.  The potential lucre of near instantaneous execution of transactions, settlements, and the use of smart contracts to automate banking processes is certainly appealing.

According to a McKinsey report, the retail banking sector has been exercising caution owing to tough regulatory requirements, and since blockchain based initiatives by the finance industry have not been implemented at a large scale. There are also policy barriers towards regulating the blockchain: The Securities and Exchange Commission (SEC) has prevented blockchain-based ETFs from being launched, The UK’s Financial Authority (FCA) are working on a policy for blockchain regulation.

The case for the blockchain in retail

Bank ledgers are created within a centralized database, by traditional standards, and this makes them more susceptible to cyber attacks as there is a single point of failure. The decentralized nature of the blockchain does away with this problem and makes cyber attacks difficult. The blockchain enables real-time fraud analysis and prevention. Cross-border transactions get further impetus due to the real-time execution of payments as well.

Implementing the blockchain in retail could help make processes like fraud prevention and know your customer quicker and more efficient. It could also enable retail lenders to assess the financial risk of existing or new customers better. The use of the blockchain could also help reduce expenses and automate several processes.

Every transaction in the blockchain is assessed by independent miners and all data is publicly available and open. The blockchain’s decentralized ledger  enables real-time analysis and verification of every piece of information during a transaction. This ledger also provides insight into documents shared and compliance activities undertaken thereby ensuring transparency.  Any disingenuous attempts to manipulate the data would get immediately highlighted and make hacks very difficult: Entities attempting a cybersecurity breach would immediately get highlighted.

The use of blockchain technology could lead to savings of $4 billion a year when it comes to international payments, and operating cost savings for on-boarding clients to the tune of $1 billion, according to McKinsey.

Further, better fraud prevention measures enabled by blockchain technology could lead to $9 billion dollars in savings. 

Another key advantage of using blockchain technology for retail banking are smart contracts for loans or retail financing. The blockchain ensures transparency by allowing relevant parties to access records without the need of an intermediary, which fosters greater trust.

Adoption challenges

Presently, a  roadblock for adopting blockchain for retail banking smart contracts is legal jurisdiction.

Due to the transparency of blockchain networks, anonymity that is required in certain instances can become a challenge. To remedy this, the entities involved are experimenting with using ‘tokens’ wherein sensitive data is substituted with a token that serves as a point of reference. Another challenge with real-time settlement is the lack of ready interchangeability between crypto assets and fiat currencies.

Despite various proof of concept projects and trials, the large capital costs involved in making a shared system has acted as a barrier. The cultural shift needed by banks to share data has also impeded the adoption of the blockchain technology in retail banking. 

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members

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