The blockchain technology works on an immutable and distributed ledger system. This technology holds immense potential to revolutionise the Indian payment system along with the broader financial sector. In blockchain technology, the participants of the network collectively validate transactions. This ensures better data integrity and keeps errors at bay.
A blockchain comprises interconnected blocks. Each of these blocks stores transaction data. They are connected to the previous block to form a continuous chain. This logical sequence forms the basis of the transaction, fostering transparency and trust among participants.
Let’s take a look at how blockchain technology can transform the banking and payment ecosystem in India.
Blockchain applications for government banking bodies
Government banking institutions have a tremendous potential to use blockchain technology for RTGS (real-time gross settlement). This would significantly enhance the speed and resilience of their respective networks. Unlike traditional end-of-day settlement, blockchain enables ongoing recording of interbank payments, enhancing security and handling higher transaction volumes efficiently.
Faster payments and digital currency
Public blockchains, such as Bitcoin, are open-source networks where anyone can participate. The transactions on these networks are more secure and faster. They work using cryptography and serve as a medium through which digital currencies are transferred.
These cryptocurrencies empower users with a greater level of control over their transactions. They also reduce the risk of fraud and identity theft. Also, they enable instant money transfer across the order without depending on centralised authorities. Thus, integrating blockchain technology would significantly bolster the payment system in India.
Impact on loans and credits
Apart from public blockchains, the payment environment is likely to benefit from permissioned blockchains. These blockchains limit transaction verification only to a few nodes. With this approach, the payment infrastructure in India is likely to benefit in terms of security and privacy. This would make it suitable for applications like trade finance.
The technology goes a long way in securing and simplifying the lending processes, including the verification process of identity. Distributed ledger technology decentralises and secures customer data. This can help in accurate and secure client profiling. It would also reduce the cost and time associated with maintaining data. The sophisticated technology can prevent tampering with transaction records, ensuring a high integrity of recorded data. This would, eventually, make the borrowing process more efficient and secure.
Currently, the technology works on a consensus-based system. Therefore, it requires all the parties to unanimously approve the transaction. These rules can be adapted to different scenarios so that the technology can adapt to evolving needs.
NPCI adopting Blockchain
The National Payments Corporation Of India (NPCI) has decided to tap into the potential of blockchain technology, a move that could potentially revolutionise the banking system in India. The NPCI is an initiative led by the RBI along with 247 Indian banking institutions. It owns and operates the Unified Payments Interface (UPI), India's indigenous instant payment system.
The organisation is actively looking for a seasoned blockchain technologist as it braces to explore fresh avenues for integrating this technology into its payment mechanism. As evident through a job listing on LinkedIn, the ideal candidate for the ‘Head of Blockchain’ position should have at least six years of experience in developing blockchain solutions and implementing them. The primary role of the candidate involves identifying opportunities where blockchain-driven solutions can revolutionise the payment landscape.
Other countries are adopting the UPI payment system
The Unified Payments Interface (UPI) has been a resounding success in strengthening the country’s payment ecosystem. The payment interface has also sparked interest in other countries. Interestingly, some countries including Nepal, France, the UAE, and the UK have adopted this payment mechanism to some extent.
Integrating the power of blockchain into UPI can benefit millions of users with this sophisticated technology. The decision of the NPCI to strengthen its operational mechanism with blockchain technology aligns with the global trend where financial institutions and central banks are exploring the potential of blockchain technology in the digital age.
As the NPCI braces up to incorporate blockchain into the payment systems in India, it comes closer to the recent progress in global financial technology. This would pave the way for innovative solutions, enhancing security in the rapidly digitising economy in India.
Mass adoption of blockchain can be implemented successfully by integrating blockchain tech into the services sector. If we look at the global trend, industries and sectors such as banking, healthcare, e-commerce, real estate, and hospitality are among the leading adopters of blockchain technology for delivering services to the end user in a more efficient manner. The mass adoption of blockchain is inevitable given its disruptive nature and the benefits it holds for citizens around the globe.
(The author is the CEO of BuyUcoin)
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