According to GlobalData, a leading data and analytics company, the Indian banking sector will witness considerable growth in the mainstream use of blockchain tech in 2020 as well as moving beyond that.
This growth may be attributed to the fact that in the past few years, several of the leading banks in India have proactively invested in blockchain platforms as part of their digital revolution initiatives, with the aim of staying ahead in the fintech innovation space.
Indian Banks Invest in a Blockchain Future
A Technology Analyst at GlobalData, Sandeep Kolakotla, stated that blockchain was one of the niche technological sectors that Indian banks were exploring and investing in. Almost all leading banks are currently involved in some blockchain-related projects.
“The banking sector in India is going through a transformative period with regards to the adoption of new technologies and the implementation of blockchain as part of the efforts of the banks to improve their efficiency and create highly secure banking transaction channels,” he added.
In September 2019, three of the top banks in the nation – ICICI Bank, Axis Bank, and Yes Bank – declared that they would be joining the Interbank Information Network (IIN), a peer-to-peer blockchain-based platform that enables faster cross-border payments by allowing “member banks to exchange information in real-time as a way to verify that a payment has been approved.”
Launched as a pilot program by J.P. Morgan in 2017, the IIN is powered by Quorum, a permission-variant of the Ethereum blockchain, and boasts of an extensive network of almost 400 banks worldwide.
IIN is a scalable technology that has transformed the way banks communicate with each other. Since banks can interact simultaneously in requesting and sharing information, there is lesser friction in the information-sharing process. Moreover, as the network grows, data can flow more easily, safely, and efficiently. There are lesser operational expenses and consequently, lower costs.
Prior to collaborating with the IIN, ICICI, Axis, and Yes Bank were recognized as leaders in the field of blockchain fintech innovation in the country.
For instance, ICICI has invested in over 250 blockchain corporations focused on domestic and international trade finance in the last year alone and brought them on-board its platform in a bid to expand its blockchain ecosystem.
It is also at the forefront in overhauling its internal systems by introducing blockchain-based automated processes for remittances. This has helped the firm increase operational efficiency by reducing processing times, transaction costs, and paper usage at the industry level.
Additionally, 11 Indian banks aligned to form a consortium for the purpose of collaborating on blockchain initiatives. The platform is working to introduce and execute a blockchain-based loan system for small and medium enterprises (SMEs) in the country.
The group includes ICICI Bank, Axis Bank, Yes Bank, HDFC, Kotak Mahindra, Standard Chartered, RBL, and South Indian Bank. Three other major financial institutions – the Bank of Baroda, the State Bank of India (SBI), and the IndusInd Bank – are involved as external members.
India’s Public Banks Explore Blockchain
Public sector financial institutions are also competing in the race to transform their services and the banking industry at large through the employment of blockchain tech.
For example, apart from being an outside member of the group of banks working on blockchain-based loans for SMEs, SBI is also working on testing the novel tech for “remittances, reconciliation, and trade finance.”
The financial entity has already introduced pilot programs related to blockchain-based smart contracts and Know-Your-Customer (KYC) solutions.
It is also the founding member of BankChain, a tech platform for banking and technological institutions to explore, build and implement blockchain-based applications for the banking sector. The consortium involves key entities such as IBM, Microsoft, Skylark, Intel, MEDICIPrim Fintech, Data Security Council of India, and 35 other commercial banks.
Considering this, Kolakata concluded: “While it is still early days for blockchain in the country’s banking sector with banks using it on an experimental basis, the recent collaborative efforts of the leading banks indicate a more widespread adoption going forward.”
“In addition, with the Ministry of Electronics and Information Technology currently preparing an approach for developing a ‘National Level Blockchain Framework,’ the technology’s potential for mainstream use in the banking sector is only set to increase further in the coming years,” he added.
Benefits of Blockchain in Banking
Blockchain, a distributed ledger technology, forms the infrastructure behind cryptocurrencies and the latest in niche technologies that many believe will transform industries across all sectors.
Multiple studies and projects are looking into the impact that blockchain can have in areas like healthcare, education, philanthropy, agriculture, democracy and governance, human rights, digital identity, environment, energy, water, land rights, and of course, finance.
Many leaders in the blockchain and crypto space see the tech as holding immense disruptive potential for the banking industry and as a way of encouraging financial inclusion.
A palper published by KPMG in 2017 stated that there were three key objectives that blockchain could help achieve: improving operational efficiency, increasing revenue, and reducing risk. It argued that if banks invested in blockchain with urgency, they could soon initiate a digital transformation in the industry.
As discussed above, multiple major banks in India have adopted this approach and are working to integrate blockchain in their processes.
The following infographic by ICICI demonstrates the key benefits that banks believe blockchain can bring about:
Hence, although the tech is relatively new, most banks – including those in India – have realized the significant benefits it can affect.
Moving forward, we can expect to see applications of blockchain technology to:
- Streamline settlement and payment processes;
- Increase transparency and thus enhance the public’s trust in centralized institutions;
- Provide better financial products through the creation of transparent and efficient crowdfunding platforms;
- Reduce trust-based risks inherent in financial transactions;
- Improve complex contractual performance through the introduction of smart contracts;
- Provide lower cost cross-border fund transfer mechanisms;
- Reduce fraud by implementing self-authentication processes based on blockchain-enabled digital IDs