Applications of Blockchain in Banking: Insight from Fintech Expert, Kinil Doshi

Kinil Doshi

Kinil Doshi is a recognized Fintech Expert in Banking Compliance and Risk Management. With over two decades of exemplary consultancy, program and product management experience within the financial services sector and technology solutions, Kinil is a seasoned professional renowned for international reach and versatile expertise. His illustrious career has spanned engagements with esteemed global entities where he has demonstrated proficiency in diverse banking domains, including technology innovation and implementation.

Kinil's strategic mindset and analytical prowess shine through in his ability to devise innovative solutions for complex challenges. With an illustrious track record, he has successfully navigated programs to triumph and brought technical acumen to the forefront, enabling seamless alignment between technology and business objectives.

Kinil is currently a Sr Vice President in top tier multinational bank, where he in charge of fintech transformation in Compliance. In this interview with our team at International Business Times, he discusses about various application of Blockchain Technology in Banking Industry.

Blockchain technology, created as a framework for Bitcoin, has since matured into a potent force with extensive implications for the banking sector. It's ability to provide improved security, trust, and efficiency make it an attractive innovation for financial institutions.

A blockchain is a decentralized technology that records transactions on several computers in such a manner that the registered data cannot be changed retroactively without the modification of all subsequent blocks. The record's decentralized nature guarantees data accuracy and security. Each block is timestamped, record transactions associated with the last block, and generates a reference to the previous instance, a hash of the last block.

Kinil Doshi explores the various applications of blockchain in banking, detailing how it is transforming traditional banking processes and the potential benefits it offers.

1. Cross-Border Payments

Cross-border payments are perhaps the most popular existing application of blockchain in the banking sector. As a rule, sending money to another jurisdiction requires several days for verification and processing, and people have few intermediaries and exchanges of different currencies. Flash-in-transaction blockchain technology can make cross-border payments easier and faster. Because they can use a shared decentralized verification mechanism, information on all transactions can be verified and completed almost instantly, greatly reducing the time and cost of performance.

Banks like Santander and Standard Chartered have launched blockchain-based solutions for cross-border payments. Banks use transparent transaction registers in the blockchain to complete transactions without intermediaries and reduce costs.

2. Know Your Customer (KYC) and Anti-Money Laundering (AML)

Banking industry requires meticulous compliance with KYC and AML regulations, which can be a lengthy and costly procedure. Using blockchain technology would streamline the process as it allows for a secure and permanent record of customer data. Banks could exchange timely validated data over a blockchain, eliminating redundancy and significantly speeding up the clearance procedure. This would actually increase productivity and decrease onboarding time, vastly improving the customer service experience.

Blockchain's excellent cryptographic checks, along with dispersed data registry cycles, render this a highly stable infrastructure for banks' KYC and AML processes. It would mean that customer data will be permanently stored safely from any person's or organization's tampering, giving an additional layer of stability from fraud or identity stealing.

3. Trade Finance
Trade finance is another significant use case of blockchain in today's world. The traditional trade finance system is a paper-intensive and multi-party process, which significantly increases the time and expenses required for trade. Blockchain converts trade documents into digital form and operates using smart contracts. A smart contract is a self-executing contract with the compact code of the terms of the agreement. This method minimizes the human requirement and the speed of the transaction and the cost of operation.

By providing a transparent and immutable ledger of all transactions, blockchain makes the trade finance functions transparent. All trade individuals can view and check the details of the deal, decreasing the danger of fraud and discrepancies. Additionally, this can develop relationships and trust between customers and financial companies. by IBM and Marco Polo Network are pioneering blockchain-based trade finance platforms. These platforms are leveraging blockchain technology and providing real-time tracking of trade transactions, reducing delays and enhancing the overall efficiency of trade finance operations.

4. Asset Management

Blockchain technology has the potential to change how asset management is done, particularly by offering a secure and transparent life cycle of asset ownership and transactions. Increased ledger in asset management can lower fraud and human errors, promote transparency, and improve the transfer of ownership. The life cycle's single source of the truth characteristic that is also relatively protected from tampering is valuable in asset management of digital assets and securities.

Moreover, blockchain can tokenize physical assets, turning them into digital tokens that trade and transfer around various blockchain platforms. Tokenization ensures that investment endeavors are democratized as token holders share property ownership. As a result, the diversification of the investor's portfolio is distributed.

5. Lending and Borrowing

Decentralized Finance (DeFi) is an innovative blockchain technology, which, as the name suggests, is easily replicable as opposed to the conventional financial delivery system. In relation to lending and borrowing, DeFi allows lenders and borrowers to access both loans and advances without third party facilitation like the bank. The application of blockchain technology, hence, allows DeFi platforms to transact through smart contracts, which can complete a significant amount of work day within hours. Thus, time and availing loan cost reduces through the DeFi process.

The ability to eliminate middlemen allows DeFi platforms to offer cheaper alternatives to loans and borrowing. It makes the services provided on these platforms accessible to many people and organizations who would not have these services from traditional banks. Moreover, the transparency and security offered by the blockchain technology make the process of lending fair and secure.

Kinil Doshi also delves in challenges and considerations of Blockchain applications in Financial Section

1. Regulatory Uncertainty

Despite the potential, the integration of blockchain in banking faces numerous difficulties, as stated earlier. One of the greatest stumbling blocks is regulatory ambiguity. It occurs since current and potential governments and regulatory institutions have not yet established comprehensive laws, which is crucial for controlling the technology in financial services, and banks have to track alterations in these imposed restrictions to stay abreast of the updates and avoid potential legal problems in the future.

2. Integration with Existing Systems

One more issue to consider is the high complexity and cost of integrating blockchain with existing banking platforms. Banks have to contribute efforts and resources to developing infrastructure and preparing specialists to incorporate blockchain opportunities. Moreover, the ability to scale becomes problematic because the current blockchain frameworks are not able to process too many deals conducted by banks efficiently.

3. Future Prospects

The future of blockchain systems in banking is likely to be promising. Continuous research and development may support increased adoption. One of the highest potentials for blockchain's future is that it is under consideration by central banks as the foundation for Central Bank Digital Currencies. The concept remains theoretical but illustrates the various unexplored applications of blockchain. Moreover, proper government regulation and technology development, blockchain could become the trendy cornerstone of the modern banking database.

Kinil Doshi' Conclusion

In conclusion, blockchain technology has several applications within the banking sector, from enhancing security and transparency to improving efficiency and reducing costs. Regardless of the hurdles facing its complete incorporation in the industry, the benefits could revolutionize diverse banking processes. In this regard, the future feels more secure.