Banking and Finance

The banking and financial system in any country is one of the widely used and highly regulated ecosystems. It is also highly centralized, with every bank and financial services provider system being connected to a central system to process, reconcile and settle transactions. Banking solutions also use a traditional ledger approach, even if digital.

In this case, a Distributed Ledger solution can effectively transform this centralized system into a decentralized system where every bank can be a node in the network and maintain its copy of a ledger, synchronized in real time with the ledgers of all other banks in the network.

The banking system is a network of entities that may transact with each other but more often facilitate transactions for their customers, each with an account with the same bank or different banks. Also, the transactions are always either simple credits or debits to the customer accounts. One transaction always has two parts - one account is debited and another either with the same bank or with a different bank in the network, which is credited with the same amount. Either both parts of the transaction must complete successfully, or neither should happen.

Currently, the central and regulatory system is responsible for managing and confirming parts of the transaction, especially when the customer accounts are from different banks. The initiating bank will update its ledger with a debit from the sender customer account and notifies the other banks to update their ledger with a credit to the recipient customer account. The central system is also notified when both banks complete their parts of the transaction successfully. If there is a dispute in which either customer claims that their account was incorrectly debited or not credited, then first the two banks will attempt a reconciliation, if that fails too then, the central bank is brought in to mediate and resolve the dispute, based on their records.

If a Distributed Ledger solution was implemented, when any bank updated its ledger, the other bank that has to update other parts of the transaction would see the update reflect on its ledger as well, since it is a central synchronized ledger. And when the second bank updates its ledger, the first bank knows it has been done, and now, both banks would know about the completion of the transaction. If it is not acceptable to eliminate the regulator, the regulator can also be on the DLT or Blockchain solution and keep track of the transactions as they flow through the system.