The use of Blockchain-centric technology can significantly impact the efficiency of bank operations and reduce the costs and time involved in cross-border banking transactions, said Moody’s Investors Service in its report.
“Banks could benefit significantly from the development and implementation of blockchain technologies in terms of enhanced efficiency, cost savings, and risk reduction,” said Colin Ellis, Moody’s Managing Director adding that the technology has potential to disrupt the way financial services are done.
Banking systems with significant cross-border transactions may see the disruption from blockchain, that underpins crypto-currencies such as Bitcoin.
Though the use of technology will also limit processing fees, commissions and gains on foreign exchange transactions, which will pressure revenue, it added.
Distributed Ledger System (DLT), widely known as blockchain, is a digital record of transactions maintained and validated by a network of computers via a cryptographic audit trail. A distributed ledger means that no single authority, like a clearinghouse, needs to verify or execute transactions.
Since blockchain does not discriminate between the transaction sizes, the low cost of transactions will allow a whole new demographic to participate in the cross-border payments space.
Currently, India, the biggest receiver in the cross-border remittance market, can benefit immensely by adopting the blockchain technology.
According to an estimate, around 200 million migrant workers support some 800 million family members globally. India alone received US$62.7 billion in international remittances in 2017, making it the largest recipient in the world. Counting in the global average cost of 21 basis points on payments volume, blockchain can help Indian banks save around US$80 million annually.
The technology will be a huge boost to the already ailing banking sector.
Of late, RBI has been keeping close eyes on the cryptocurrencies and blockchain technology.
Besides, issuing a warning to Bitcoin traders in its latest circular, the central bank has acknowledged the benefits of the blockchain. RBI deputy Governor had earlier said that Blockchain tech should be encouraged and exploited more.
According to RBI’s working group report, blockchain potentially has far-reaching implications for the financial sector, and this is prompting more and more banks, insurers and other financial institutions to invest in research of the potential applications of this technology.
State Bank of India (SBI), in February, had announced that it will use blockchain technology in its reconciliation, remittances and trade finance operations from next fiscal year.
Globally, many banks and state-owned banks in countries like Russia, Saudi Arabia and the UAE have been working on blockchain-powered financial solutions.