Replicated and shared ledger for banking systems

Banks keeps record of who owns what and when on their banking system, earlier they used to keep record on paper ledger, But thanks to fintech revolution, Every bank is well equipped with net and mobile banking solution. Customer can keep track on banking records through these end user application connected to bank’s digital ledger. Every bank has its own dedicated ledger, overall it involves a major expense in whole banking operation. Now we have blockchain which have shown us a future of decentralized and shared ledger, where entities could trust each other to validate any fact on a shared ledger.

Lets take an example of a bank operation, Let’s say-bank deposit to understand how blockchain can just simplify the banking process by putting all transactions on a shared and secure ledger. It works same for other banking operations as well.

Lets consider we have three banks – Bank A, Bank B and Bank C and Two customers Customer A and Customer B. In traditional banking system each bank maintains own ledger for keeping records, So it will looks like this-

Balances at three banks for two customers.

Two immediate observations jump out:

First, look at Banks A and B. Bank A’s systems record that it is owed £1m by Bank B. And Bank B’s systems also record this fact: they record that Bank B owes £1m to Bank A. So the same information is recorded twice, by two independently developed, maintained and operated systems. And in other domains, this duplication is much greater and more expensive, as we’ll discuss below.
Secondly, look at Customer A. They are owed money by banks A and C and are overdrawn at Bank B. Put another way, Banks A and C owe money to Customer A. Who records this fact? Banks A and C! We take this situation for granted but it does seem very odd that Customer A has to trust both that the bank will be good for the money and that the bank’s records will be accurate. That feels like a conflict of interest, if ever there was one…

So we have two interesting phenomena: deposit-makers have to trust their banks to be good for the money and to account for things correctly. And the banks themselves have to spend a lot of time and money developing systems that all do pretty much the same thing – and then spend even more time and money checking with each other to make sure their systems agree on common facts.

Even in our simple example, there are potentially 7 separate matching entries to be verified.

Lots of information be verified collectively right? It cost a lot of time and money to banks.

What if we can create a single table/ledger which contains collective information of all the entries recorded on separate ledgers, which will look like this:

This sounds neat and clean, Why to find information in different places where you can find at one. When we have a single ledger then it’s very important that everyone in the system from bank to customer should have copy of this ledger, So a Replicated and shared ledger. It will look like this:

So the single ledger will be shared amongst all the participant involved in banking operation, It is more neat, It will save a lots of cost and money. Sounds Interesting?

Blockchain makes it possible to put all banking operations associated with different banks on a common and shared ledger which is secure and tampered proof. But the challenge is here to make this ecosystem more viable and acceptable. For this, these banks need to tie up together to form a shared ledger, few developments has already been in this area. 52 Global banks has formed a consortium to build a shared ledger and named it R3. Similar development has happened in india, where SBI along with 8 more banks agreed to form a consortium to use shared ledger technology. But I believe this is not the global solution, Bitcoin shown us a picture of border less payments with ease, but with banking consortium they are again limiting the banking operations to specific locations.

Ripple has pumped up the game with its new offering interledger, which support payment transfer to cross ledger, that’s amazing. Just think using the technology like interledger, we can be able to send money from SBI ledger to lets say R3 Ledger without any remittance fees.

Blockchainers get your excitement up, Blockchain will be going to transform this space in a big way.