Benefits of blockchain in banking

Blockchain is like a digital record that helps transfer and secure information. Blockchain technology is a distributed ledger (DLT) that records and permanently stores transactions between two parties. A blockchain is a collection of individual blocks made up of related and linked transactions in a specific order. Anyone interested can exchange information via a digital “journal” in a computer network without an intermediary entity.

A report “Customer-Centric Digital Banking Program in Vietnam” published by Military Commercial Joint Stock Bank (MBBank) in June 2021 identified 5 key benefits of DLT.

First, transactions can be executed irreversibly, and clearing and settlement can be scheduled almost instantly, allowing distributed ledger operators to increase data accuracy and transactions and reduce payment risk.

Second, the systems work on a peer-to-peer basis and transactions are almost guaranteed to be executed correctly, allowing distributed ledger operators to eliminate maintenance and IT infrastructure and associated costs.

Third, every transaction in the ledger is officially verified by the community of network users, not by a central authority, making the distributed ledger vulnerable to fraud. Each transaction is automatically managed in such a way that it is difficult to undo the transaction history.

Fourth, any document or intangible asset can be encoded or represented in a distributed ledger.

Fifth, a publicly available historical record of all transactions is created to allow for effective monitoring and auditing by participants, guardians and regulators.

According to Dang Min Tuan, chairman of the Vietnam Blockchain Alliance, blockchain technology in the banking system can reduce the time and human resources of the interbank transaction matching system. For example, if a bank needs to reconcile with 42 different banks, the application of blockchain technology reduces reconciliation costs and transaction verification time, making reconciliation faster and more convenient. They are more convenient and accurate for banks.

In addition to voting, blockchain helps connect to other ecosystems, such as B. Reward points connecting the banking system and retail services offered by other companies such as airlines, supermarkets and telecoms.

Blockchain application status in banking

Most of the world’s largest financial and banking companies have explored the use of blockchain for payments. Goldman Sachs (USA) has filed a patent for processing transactions based on blockchain technology. Additionally, many local exchanges such as the Nasdaq Stock Exchange and the New York Stock Exchange have conducted extensive research on blockchain technology. Nasdaq has announced the successful completion and registration of securities transactions using Nasdaq Linq’s blockchain technology.

Several governments have published reports on the impact of blockchain. The introduction of new technologies is often accompanied by an increase in management. The US government adopted the “check first, work later” principle; Where the regulators of the countries limit the number of potential applications for the blockchain technology.

Touted as a blockchain trend, eKYC technology is used by 1,125 banks worldwide. eKYC is implemented using various technologies, e.g. B. based on image processing analysis, chip-based scanning of citizen identification information. This method can be combined with blockchain to increase the security and transparency of the system.

In Vietnam, blockchain is also used by many banks, including MB, despite some limitations. More specifically, after a trial period, MB officially launched and joined Contour Network in December 2021 to commercially provide Letter of Credit (L/C) services using blockchain technology.

MB’s blockchain-based L/C service enables letter of credit documentation for the entire workflow from issuance of documents to delivery under L/C on the same Contour network. This service marks a new step for MB towards digital transformation of financial and banking activities – digitization of products and services for import and export customers, optimization of customer experience.

In November 2021, “Loss of MB Payment Funds” is an account and card protection program implemented in MB fraud schemes to ensure customer satisfaction and increase security. The island of stealing money on accounts and cards is increasing in ever more complex forms. In addition, this bank is constantly updating the eKYC feature to simplify the registration process and increase security and convenience for users. In the future, MB intends to improve the technology so that the money transfer process only requires the use of voice.

Nguyen Kim Anh, Deputy Governor of the State Bank, said that in the context of the 4.0 technological revolution, the banking industry faces great opportunities and challenges, and it is important to focus on the transition to automatic digitization and the provision of new products and services. on customers. Support banks to develop sustainably and create competitive advantages.

In order to successfully implement blockchain applications in the banking sector, parties, especially banks, need to plan for investments in system upgrades while having a staff development strategy to keep a fast pace. development in this area.

Tien Vuong