A blockchain-based financial services platform which goes by the name of “Fitting Hub” is being launched by five Japanese banks collaborating with each other as confirmed in a recent press release. It is a widespread narrative that the blockchain and crypto world is largely poised against the banking system but from this recent news, one can deduct that blockchain technology can be useful ‘for’ the traditional banking system as well and it is not entirely against it. Here’s how blockchain can improve the current banking system and not destroy it.
Cryptos are often proclaimed by its proponents to be the replacement of banks. But we have examples of platforms like Ripple that prove that if blockchain is used by the banks in order to reform their frameworks, the hybrid outcome can prove to be game-changing. Ripple is a blockchain-based platform that provides financial institutions and enterprises with a way to perform monetary transactions. The RippleNet framework is global, meaning cross-border transactions are made much easier as compared to the current frameworks. Western Union charges $5 for a money transfer of up to $50 while using Ripple, the current minimum transaction cost required by the network for a standard transaction is 0.00001 XRP (1 XRP ~ $0.316). XRP is the native representative of value in the RippleNet. Cross border payments are made much easier with Ripple. As the Ripple’s site states:
“Built for enterprise use, XRP offers banks and payment providers a reliable, on-demand option to source liquidity for cross-border payments.”
Sending money through banks using Western Union often takes 1 to 3 days for verification and confirmation, although typical transaction times are in minutes. With RippleNet, payment settlements take only 4 seconds. Ripple can help make banks make their frameworks less costly, global and faster than ever before. Big names like MoneyGram, Standard Chartered and MUFG bank are already customers of the Ripple. Ripple highlights that there is already a lot of proof that blockchain can be used by the banks for good.
The biggest problems faced in the world of finance are related to trust and transparency. Monetary transactions whether big or small require an extreme level of transparency so that no forgery can be done by any central party. Besides in the banking system, the trust is put by the clients in the banks. Banks have full control over the flow of money and service fees are charged by them.
Blockchain gives a solution to the problems of both trust and transparency. Owing to the decentralized nature, there are multiple nodes maintaining the network instead of a single one in a blockchain network. Every node carries a record of transactions and all the transactions happening on the network are visible to everyone participating in the network. Full transparency is obtained as a result of this. Blockchain gives a trustless framework where one does not have to trust a central controlling party as the network is decentralized. Both the issues that are essential to the financial industry are easily handled by blockchain. So wherever there is a centralized framework with a strong need for transparency, blockchain can prove to be revolutionary, be it the banks or some governmental framework.
Instead of building a general sense that blockchain is against the banks, if use-cases of this tech are found in the banking system lending transparency, the banking system that is there for centuries can be made more efficient overall. Although as of now, banks are withholding from adopting this tech owing the crypto world’s stance being largely poised against them. But it’s only a matter of time before they realize the potential carried by platforms like Ripple.
As the CEO and founder Aximetria, Alexey Ermakov, said while talking to BlockPublisher:
“Blockchain as a technology still has not gained significant distribution in the banking industry. In none of the existing banking processes, blockchain technology has gained recognition or made it impossible to make these processes more efficient, faster or safer. However, all participants in the banking sector are optimistic about the future options for reconciling this technology and actively continue to pilot/experiment it in a wide variety of applications.”
Blockchain is not the enemy of the banks, it is a sword that just needs to be grabbed from the right end.