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Capabilities to be built on- Blockchain Payment Platform

Across the globe, banks are adopting to new technology for secured Banking in payments area. As Corporate Banks / Financial Institutions seeks to have safe and secured network to perform remittance transactions.  

Blockchain network have the capabilities to meet the technology demands of bank and Financial Institutions with secured network and enable real time transaction payment initiation and confirmation.

We will elaborate few key functionalities, which needs to be considered while building blockchain payment platform. 

 

1.    KYC:

 Know Your Customer (KYC) processes provide the backbone of financial institutions' anti-money laundering efforts and help to detect and prevent criminal behaviors the world over. It is mandatory to have blockchain enabled KYC Solution to be built as part of blockchain network. There can be two or three level KYC check in blockchain network such as

-       Domestic  

-       International or   

-       With Group of institutions (Predefined)

For Customers, Bank will ensure customer information available in the blockchain network KYC verified and can be used as is, which will reduce customer On boarding time and reduces paper work for customer during On boarding process,  

For Regulators, the use of blockchain provides a single source of customer data for better understanding and visibility of customer activity across financial institutions

For Transaction Processing, with help of blockchain network bank can avoid fraudulent customers performing transaction over the network real-time. As during processing of payment, transaction system will be designed in such a way to check the customer KYC status and then proceed with the transaction real-time.  

2.    Payment Platform :

Effectively use Blockchain technology will help Bank / Financial institutions to build payment network for domestic and International payments with more secured features. Some of the key features which needs to be built on payment platform with help of block chain network are

  • Globally we find more blockchain-based payment networks and fiat-backed digital currencies like bitcoins, crypto currency. Going forward we will find unified payment platform created on the blockchain network, were all bank / FI / Corporates can participate and use the network for their Domestic Payments and International remittances transactions across the globe.                                              
  • Security token play a key role in blockchain network. As and when any payment or transaction needs to be performed on the network, participant who  have access right to security token in the network can perform the transaction successfully based on rights access provided.                                  
  •  Integration of Legacy systems or existing Core Banking application and Payment system with blockchain network will be a key challenge for banks, institutions and payment agencies. They have to develop various integration APIs /  accelerators / interfaces   and integrate with the respective network.                                     
  • With single source of truth of data available in the blockchain network, there are opportunities for more participants to on board the blockchain network for Seamless payments across their participants. This will enable bank to transact more payment transaction on behalf of customer with more security.                                                                                                                                             
  • Cost of transaction will widely been reduced and dependency on third party application / vendors will be minimized when bank and financial institutions participate commonly in the network.                          
  • Blockchain as Service Platform: Large Commercial Banks and Financial institution who have blockchain platform can on board small banks and financial institutions to use their blockchain network as SERVICE PROVIDER, which will help other bank to participate in the Blockchain platform. The service provide by larger bank will have additional revenue for the bank. Further larger banks will create an ecosystem across small bank to encourage usage of blockchain payment platform.

3.    Audit Framework:

Blockchain network has the capability to record all transaction performed on the platform such as transaction initiated, processed, authorized, recorded and reported along with user credentials who has performed the transaction. This information are mandatory to be captured for audit purpose of the bank.

Blockchain adoption may enable central locations to obtain audit data, and auditors may develop standard operating procedures to obtain audit evidence directly from blockchain network through various reports.

4.    Reconciliation :

Banks have huge transaction data running on day-to-day basis in various area like remittance transaction, LC / BC and Treasury Transactions. Reconciliation of accounts are mandatory performed by the bank on all transaction or set of transaction performed on the platform.

Blockchain is latest technology on data management including financial transactions. Using Blockchain, the market participants can work in real time on shared common datasets. As groups of independent parties, it could be Bank, financial institutions, government regulators work with their universal data sources, automatic reconciliation happens simultaneously among all the participants. The data are uniformly available across all the participants, which will be transparent during reconciliation process.

5.    Regulatory & Compliance  :

Banks and FI are moving from traditional legacy application towards more digital technology platform. At the same time block chain technology provide latest innovative framework to store data in decentralized network with more secured features.

Frauds can be reduced with help of blockchain network since the data are distributed in network with help of DLT (Distributed Ledger Technology). This will help to eliminate inefficiencies arising from reconciliation time frames, no physical check are required for the transaction between the parties as all data are uniformly available in the network.

Globally Central bank and Regulatory authorities govern Banks and financial institutions. There are guideline and restriction provided by them for use of blockchain network. Some of the features, which will help regulators to check blockchain transaction, are as mentioned below

Regulatory Check: 

  • One of the most exciting features of blockchain from the compliance perspective is its practical immutability, once a data is saved into the blockchain, it cannot be changed or deleted. Since blockchain data is shared by design, regulators would not have to collect, store, reconcile and aggregate the information themselves.
  • Since Data is uniformly available across the participants (Regulators, Banks, Payment service provider), there cannot be no tampering or modification of data in the network. This will help regulators / banks to reducing manual compliance processes and eliminating data reconciliation to minimum.

Reduces Fraudulent Transaction / Anti Money Laundering (AML):

          Banks / FI all over the world go through something where they can end being losing money heavily via fines for not meeting regulatory requirements. Crimes like fraud and money laundering are reaching unexpected levels and corporate identity management systems, vital to KYC and AML compliance. With use of existing legacy system / technology, Bank / FI takes several months and years to track the trail of transaction from different network and system and to finally, arrive at the fraudulent transactions.

           Blockchain helps in recording the transactions, which cannot be deleted or altered. Many of the steps could be eliminated if the information existed already in a secure, tamper-resistant database — an immutable blockchain. Any changes to customer data or transaction data will be distributed to participants in the blockchain immediately.

 

Conclusion:   Overall Blockchain technology have provided great features like security, real-time recording of transaction, Audit and accuracy. As this technology is new to market, banks / financial institutions / Payment service providers / Financial Markets need to have detailed analysis before implementation.  Regulatory approvals as per country standards has to be adhered to avoid any regulatory fines and compliance issues for the transaction performed on the network.

 

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Arunachalam N

Arunachalam N

Senior consultant

Mindtree

Member since

30 Jul 2018

Location

Bangalore

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This post is from a series of posts in the group:

Banking Strategy, Digital and Transformation

Latest thinking in respect to Banking Strategy, Digital and Transformation. Harnessing our collective wisdom to make banking better. Ambrish Parmar


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