The banking industry is undergoing the period of essential technological changes. And in this process many institutions have taken some important steps in the direction of customer-centric business models like mobile banking. However, when it comes to adopting blockchain, also known as the Distributed Ledger Technology (DLT), the enthusiasm that should be there for new technology is not visible in the institutions.
Today, the number of technocrats advocating for the complete adoption of blockchain in financial services is increasing day by day. And why not, as we’re aware of how it’s doing wonders in other areas.
However, when you explore things from the point of view of banks, their reluctance to switch over to the technology seems to be sensible. There are also relentless regulatory obstructions, which have been in place for years to create a barrier for the technology.
Today in this article we will try to find out what are the things that banks are not as enthusiastic about as they should be at present.
Awareness Regarding Blockchain Technology
The major barrier associated with this technology is the lack of awareness, particularly in sectors like banking and financial services. It is affecting the potential application of blockchain technology in different financial services. It is a nuanced concept, which needs to reach as many people as possible. And once people understand it, they will not hold back from adopting it.
The governing authority must educate the institution on blockchain. It should encourage the banks to transition from centralized to distributed ledger technology to achieve the core objective of complete financial inclusion.
Unscalable Infrastructure and Traditional Culture
Switching over to a new blockchain-based infrastructure can be challenging for banking institutions due to their traditional culture. Some banks are still working on traditional pattern involving unnecessary manual intervention, and hence their infrastructure is unprepared for the blockchain technology.
And another challenge for financial institutions is the lack of access to skilled professionals. They have hardly any access to the pool of trained blockchain experts who can help the institutions leverage the latest technology.
Before banks start adopting the technology, they should enhance their internal systems and modernize the infrastructure so that the process of scaling up to blockchain-backed infrastructure becomes seamless. Integrating the latest technology with existing systems involves major technological undertakings, which you should implement only with the help of trained and experienced professionals.
Regulation & Governance:
Regulations have always been a major hindrance in the way of technological advancement. There is also the dearth of supervisory clarity concerning the application of fundamental blockchain technology in financial institutions, which is an important barrier for mass adoption.
Centralized systems, especially in banks, require regulatory support as they act as shock absorber in times of crisis. While on the other hand, decentralized ledger systems are exposed to financial shocks, which can affect the institutions and their customers directly, unless there are remedies in place.
The resolution to this challenge lies in the future. Once the technology starts rolling out across the financial institutions, a common standard will emerge.
How is blockchain used in banking?
Blockchain technology provides a way for untrusted parties to come to an agreement on the state of a database, without using a middleman
Top 5 uses of Blockchain in banking
Raising Funds, Faster Payment, Settlement and Clearance System, Trade Finance, Loans and Credits
How is JP Morgan using blockchain?
JP Morgan became the first bank to set up its services in the metaverse by launching the Onyx lounge in Decentraland, a blockchain-based 3D virtual world browser.
What are the top 3 blockchain companies?
#1 Coinbase Global Inc. (COIN)
#2 Monex Group Inc. ( MNXBF)
#3 BIT Mining Ltd. ( BTCM)
What are the top 3 blockchain use cases in institutions?
Internet of Things (IoT)
Personal identity security.