Blockchain in Banking: What Banks Already Use It and How You Can, too

Blockchain isn't new, and it's so effective that not only startups but also large banks see great potential in it. Over 95% of banks participating in a Global Blockchain Survey stated they are ready to make some level of investment in distributed ledger or blockchain technology.

Top banks, including Silvergate Capital, Signature Bank, JPMorgan, and others, grow investment in blockchain solutions for banking. In 2019, 158 blockchain use cases in banking were recorded in the US only.

Would you like to know more about the practical use of blockchain in banking? Learn the stories of six banks and the most common blockchain uses here.

6 banks renowned for the use of blockchain in banking

Even though many companies still hesitate to leverage blockchain technology in banking, 68% of banks believe they will lose a competitive advantage without implementing it. 84% are sure that blockchain in banking and finance will soon become mainstream.

These and other factors have already made some organizations adopt blockchain technology in banking systems and mobile apps . Here's how they did it.

1. Goldman Sachs

Goldman Sachs is the leading American investment bank with 2.5 trillion USD assets under management. Founded back in 1869, it has been shaping the financial sector for decades and continues to impact it through blockchain adoption initiatives.

Their first contribution is an educational website casting the light on what blockchain is and why this technology is secure. It helps both organizations implementing blockchain in banking and consumers to see its strengths through simple explanations.

Besides educational resources, Goldman Sachs is the key investor behind the stablecoin USDC by Circle. This cryptocurrency is pegged to the US dollar, which means one USDC is always worth one dollar and prevents the volatility of the USD Coin. The investment in USDCs allows Goldman Sachs to transfer large sums of money globally without volatility risks.

Finally, in April of 2022, Goldman Sachs announced it started to explore the tokenization of real assets as one of the financial instruments. So more innovations are expected to come.

2. JPMorgan

JPMorgan is one of the primary ambassadors of blockchain in banking.

This multinational investment bank uses blockchain in the Confirm app to enhance smooth funds transfers between banking institutions across the globe. It completes global account information validation for partner banking institutions. The improved information exchange helps to reduce the share of rejected transactions resulting from mismatched payment details. Apart from improving the accuracy of transactions, such innovation also lowers the expenses for sending and receiving banks.

Liink is another app by JPMorgan Chase that uses Onyx's blockchain platform to enable financial organizations and corporate users to exchange payment-related information securely through P2P data transfers. Currently, 382 banks use the Liink platform for data exchange.

In February of 2022, JPMorgan Chase also announced a strategic investment in TRM Labs. It's a blockchain analysis firm helping institutions engaged with cryptocurrency to investigate financial crime and fraud. Their products are trusted by the FBI, PayPal, Visa, Uniswap, and other famous names.

3. Signature Bank

Signature Bank is another popular US-based bank that got approval for blockchain payments from the New York State regulators. This organization is renowned for its crypto-friendly approach – digital currency makes up nearly 16% of total deposits .

In 2021, Signature Bank announced the partnership with TrueUSD, a fully collateralized stablecoin. "Collateralized" means that the US dollar backs the digital currency in a 1:1 ratio, making it a reliable banking option.

Signature Bank also supports the Signet digital payments system that enables real-time payments for commercial clients 24/7. Unlike regular systems, Signet transfers payments directly between the clients of Signature Bank in real-time and without transaction fees.

4. Silvergate Capital

Silvergate Capital Bank is similar to Signature Bank in the sense that both institutions enable blockchain payments. Silvergate Capital went public at the end of 2019 at $13 per share. Today it trades roughly for $70.

This bank is known for its Silvergate Exchange Network (SEN) – a digital payments network that instantly clears transactions between two users. It was among the first banks to build such a network, gaining the market advantage. Silvergate Capital has already onboarded 76 crypto exchanges and hundreds of institutional investors.

Silvergate also works on other crypto-projects, including SEN Leverage. SEN Leverage is a lending solution that provides customers with access to US dollar loans collateralized by bitcoin.

5. Swedish Central Bank

The Swedish Central Bank or Riksbank is a bank with over 350-year history that now pioneers the use of Blockchain in banking.

The Riksbank currently is investigating ways to introduce e-krona, the currency that would serve as a digital complement to cash. The project relies on the Corda distributed ledger technology solutions supported by R3.

The e-krona project started in 2017 when Riksbank initiated the market analysis for an e-krona. Their team spoke to several national and international agents and studied the legal issues stemming from the digital currency implementation.

In 2020, the bank launched the pilot version by creating a tech solution for e-krona. The organization aimed to test the MVP version to learn more about its capabilities and compare it with alternative platforms in the global market.

Currently, the Riksbank keeps working on various tech solutions for an e-krona and researches its potential effect on the Swedish economy.

6. HSBC

HSBC is a second-largest European bank and financial holding headquartered in London. Like the Swedish Central Bank, it also uses R3's blockchain platform for its custody blockchain platform called Digital Vault. The Digital Vault solution enables custody clients to instantly access their private assets (debt, equity, and real estate). They don't need to request paper-based records, wasting time since blockchain speeds up auditing.

HSBC also joins efforts with other banks to maximize the opportunities blockchain opens. In 2021, it began cooperation with Wells Fargo to settle bilateral foreign currency trades using a blockchain platform. This solution allows them to settle FX trades using real currencies and real accounts in no more than three minutes. The rapid settlement that happens directly between two banks considerably reduces exposure risks.

Top blockchain use cases in banking and finance

As you can see from the examples of banks investing in blockchain solutions for banking, payments are the most common way to leverage this technology. Yet, it is also a great choice for stock trading, digital identity verification, data security, and other fintech fields.

Here are the most common blockchain use cases in banking and finance:

Payments

Payments are a life-critical feature in any financial system and the most frequent use of blockchain in banking. Therefore, large commercial and national banks take steps toward the digital transformation and adoption of crypto-based payments.

The cryptocurrencies like bitcoin and ether are built on public blockchains. Since anyone can use them, there is no need to involve third parties to verify transactions. This facilitates cross-border payments, making them cheaper and faster. While regular transactions may take up to 3 days to process, crypto transfers happen in 10 minutes.

P2P transfers

Peer-to-peer transfers enable users to send funds from their bank account or credit card directly to another person using mobile banking or the web. The problem with most P2P solutions is that they have significant limitations. You can transfer money within a specific geographical area. Besides, the P2P commissions are pricey, and fraud risks are high. On top of that, fintech companies are obliged to adhere to the mobile banking compliance requirements

That's why fintech providers use blockchain capabilities to minimize the drawbacks of P2P apps:

• Cryptocurrency doesn't impose geographical limitations.
• Cryptography secures all blockchain transactions enhancing their security.
• Banking services become more affordable since there are no hidden fees.

Clearance and settlement

If you are related to the financial industry, you know that moving money between multiple institutions is a nightmare. The process includes too many intermediaries that must validate the transaction before it reaches the destination.

That's why many large banks adopt blockchain to decentralize and settle directly. The technology allows tracking transactions much more effectively than existing protocols like SWIFT.

Crowdfunding

You cannot just ask thousands of people to raise money through online channels – it always involves serious legal and security issues only reliable technology can solve. That's why blockchain has become widely used in crowdfunding.

Initial Coin Offerings (ICOs) serve as an equivalent to initial public offerings (IPOs). This financial instrument is similar to shares of a company. Investors purchase tokens to sell them on cryptocurrency markets later when the product is launched and becomes successful.

Digital identity verification

Since modern consumers switch between multiple financial services, verification may be tiring. Blockchain adoption allows us to remove unnecessary steps enabling users to register once with the blockchain and avoid repeated verification in services that also use decentralized hyperledger.

It also optimizes the KYC procedure by automatically updating customer databases and enabling loan officers and banks to share information easily.

Syndicated loans

A syndicated loan is when an individual or company gets a loan from a group of lenders (a syndicate). Since many stakeholders are involved, the procedure is quite complicated and takes 19 days on average to settle a transaction.

The use of blockchain in banking for syndicated loans speeds up everything. The KYC stage happens much faster, and banks don't have to worry about compliance with the Bank Secrecy Act (BSA) and Anti-Money Laundering (AML). If one of the banks in a syndicate using blockchain meets regulatory requirements, others don't have to prove the compliance separately.

Besides the listed blockchain use cases in banking and finance, you can also apply this technology for stock exchanges, hedge funds, accounting, credit, and other solutions. If you are interested in using it in other industries, blockchain also has a lot to offer.

Why develop custom blockchain solutions for banking?

The market offers thousands of solutions based on blockchain and related technologies, but none of them is tailored to your needs. Available applications may include unnecessary features you will have to pay for or, vice versa, miss some critical functionality you cannot do without. They are suitable for small organizations with a limited budget but don't work for large banks with complex internal and external systems. They may also have worse security than solutions you build for yourself from scratch and fully control.

Therefore, to get software that perfectly fits your business, it's better to invest in custom solutions and hire a dedicated engineering team . You can use the software internally or provide it to other financial companies for a fee.

How Binariks can help with blockchain solutions for banking

Implementing blockchain in banking and finance requires prior experience and specialized skills. Hence, if you have never done it before, it's better to outsource the tech part to professionals.

Binariks is a software product development company with a focus on the fintech industry . We create banking and financial platform solutions leveraging blockchain and distributed ledger technology based on unique clients' needs. We also apply blockchain across other industries when software can benefit from its capabilities.

Our company offers a tailored collaboration model for every case, whether you need a dedicated team or consulting. View our completed projects to learn about our work or contact us with any questions.

Final thoughts

Blockchain now is what the web was two decades ago. While many companies start using it, some still doubt whether it's that good.

Nevertheless, the growing role of blockchain in banking and finance is hard to deny. Top banks, including Goldman Sachs, JP Morgan, Signature, and others, use it for multiple purposes, from cross-border payments to foreign currency trades. Therefore, you should definitely consider how the use of blockchain in banking can supercharge your institution.

If you need help with consulting or engineering tasks, contact Binariks for assistance.