Preface
As discussed in the last blog, cryptocurrencies and the technology of Blockchains have made a grave impact on the banking sector through their revolutionary advantages, which in a way, have completely crumpled the traditional currencies, and subsequently, changed the entire system of banking to be called as the new future of the banking system.
Ever since the cryptocurrency has skyrocketed in its popularity, which is not more than 4 years ago, it has made a deep impact on the dominating headlines, markets despite the market going up and down in volatility.
But, even still, four years gone and there is still a lot of uncertainty about what cryptocurrencies are and what they can do.
It is already known that the most important feature of cryptocurrency is that it heavily relies on a technology called Blockchain.
Now, in less than 5 years, the Blockchain technology has paved its way to advancing into the mortgage lending space by the end of 2018 and the start of 2019. Let us look at what Cryptocurrencies have to offer to banks.
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What’s in it for the banks?
Since the cryptocurrency led – Blockchain technology is a technology relying on a global network that jointly manages shared databases that record the cryptocurrency transactions on a public ledger; it is renowned for its security - Meaning, that to hack into the Blockchain database, you’d have to 'literally' hack into every single one of the computers to have access to the ocean of data. Thus, this Blockchain technology is impacting the banks and their mortgage lending.
Since, for many financial institutions, lending is still a paper-intensive process as banks would previously have to worry about maintaining the documents involved in the lending process – which include: mortgage loan paperwork, vehicle loans and equipment leasing contracts have a cash value attached to them, as they form the major part of the Security kept by banks against mortgages.
If these documents are destroyed or stolen, for instance, the value that these documents hold will be completely lost and would result in a huge loss for the banks. So using the Blockchain technology to create a currency that is virtually impossible to steal or destroy, is a safe play for these financial institutions.
Now, any transaction, paperless or paper, that takes place becomes tamper-proof for the banks as the banks that have or will adopt the Blockchain technology gain access to Blockchain’s digital ledger that makes the entire lending process more safe and secure. In any transaction, only those who have the permission and the access to the network will know about it, thus making it tamper-proof while everything happens in real-time!
Speaking from a perspective of regulatory compliance, Blockchain technology helps to a much large extent. The story behind this is that since the increasing cost of compliance has been seen as a major driving factor for the changing trends in banking and the financial services industry in most of 2018, banks and other lenders are under a constant increasing regulatory compliance pressure to quickly provide evidence as to how the processes take place, because of the increasing bank thefts and frauds.
Here, the Blockchain technology comes handy as one of the most interesting of the many features of Blockchain from a legal regulatory compliance perspective is that Blockchain is ‘immutable’, meaning that once a transaction takes place in the Blockchain and is recorded into the Blockchain ledger, the records of the transaction cannot be deleted or changed. This gives banks a little extra edge in improving their lending methods as they don’t have to worry about the transactional data getting stolen or being tampered with.
Here is the most interesting gain that banks enjoy about Blockchain and cryptocurrency – In addition to being secure; Blockchain makes the process of lending faster and cheaper for the banks as Blockchain is a distributed ledger for the cryptocurrency, it can drastically reduce costs related to manual processing of loan documents. So now that the data is being stored in an online ledger, which is practically impossible to fiddle with, the costs of maintaining loan data becomes dramatically reduced. So the banks save money in this aspect. To quote a Blockchain observer:
‘Blockchain fundamentally eliminates the need to manage paper-based assets as financial institutions can significantly reduce manual intervention when transferring digital assets to parties in the lending ecosystem.’
Conclusion
While it is very difficult for many banking officials to determine how drastically the Blockchain and cryptocurrency can impact the lending system of the banks, it is also important to know that as Blockchain and cryptocurrency offer the potential for faster payments at a very low cost, Cryptocurrencies and Blockchains have the power to turn the whole financial services industry on its head.
If you feel otherwise about the ability of Cryptocurrency and Blockchain to turn the whole financial services industry over its head, you can write and share your experiences in BankQuality as we at BankQuality believe in sharing and learning from each other’s experiences. To stay updated on the on-going topics of discussions to make an informed choice before you wish to engage with any financial institution, Sign up on our website and explore our global community TODAY!