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Why Are Banks Interested in Blockchain-based Payment Systems?

Few would have predicted that banks would leverage the underlying technology to better their internal processes when Bitcoin initially appeared on the scene as an alternative to established banking systems. That desire is now considerably closer to fulfillment than it was ten years ago. A lot has changed in terms of investor and institutional attitudes over the last 10 years, and everybody who hasn’t been living under a rock is at least familiar with the term blockchain. In light of this shift, here’s a look at how banks aim to implement blockchain technology in their operations.

Why Would Banks Opt for Blockchain Payment Systems?

The core assumption is that Blockchain-based transactions are faster, more secure, and less expensive than traditional banking systems. Cross-border payments are a prime illustration of this issue, as they can take anywhere from 2 to 5 days to clear. Ripple has already shown that it can execute transactions thousands of times faster than the present system at a fraction of the cost while maintaining a high level of security. Another benefit of Blockchain is that its transactions are transparent. All actions and balances on the network can be observed by all users on the network, making it virtually hard to manipulate or tamper with. All of this makes blockchain-based payment systems incredibly appealing to banks, who would be able to save a significant amount of money.

The issue with adoption is that these institutions are engulfed in regulatory red tape from head to toe, making them very sluggish moving creatures. Because banks are responsible for maintaining people’s trust, a real-world blockchain-based payment network would require years of intensive testing before being given to the public. However, it’s encouraging to see that such payment channels are being actively built by a number of banks and blockchain businesses. For example, BitPesa is a Kenyan firm that aims to make it possible to move money between people without the use of a bank. Other more established players, like as Ripple, are already collaborating with a number of Japanese and Thai institutions to use Blockchain technology to make efficient currency transfers.

In the Future Payments

The great majority of payments handled by banks today are between humans and technology, or between humans and other humans. However, as more and more gadgets grow smarter, M2M (Machine to Machine) payments will become the norm in the future. Self-driving automobiles, for example, would pay for parking, tolls, and gasoline at automated locations. Because the majority of these transactions will be relatively little, it would be inefficient to continue to process them using outdated methods. This is where the combination of Blockchain Technology and Smart Networks comes into play.

Banks are centralized businesses that are vulnerable to a range of hacking and security breaches. Several breaches in recent years have resulted in the theft of millions of people’s identities all across the world. Blockchains, on the other hand, are essentially impregnable and require access to a majority of the network’s nodes to be successful. As a result, it’s no surprise that most big banks are looking at blockchains to improve the security of their payment processing. MasterCard and Visa are already working on blockchain-based payment networks and have filed many patent applications for them. American Express has also incorporated Blockchain Technology into its payment system and has filed a patent on the technology, which might help improve the speed and usefulness of its existing card networks. Meanwhile, a group of European banks is supporting Blockchain research in order to build industry standards that will make it easier for different blockchain systems to work together. With the benefits that blockchain offers, it’s no surprise that banks are eager to use it, and the future of blockchain-based payments appears to be bright.

What do you think?

Written by Winston Williams

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