Online Banking: Exploring the Impact of Integration of Blockchain and Machine Learning in the Industry

Highlights:

• Introduction
• Blockchain technology and online banking
• Improving cybersecurity through ML algorithms

Online banking refers to the use of the Internet for conducting financial transactions and availing different banking services. Also called web or virtual banking, it offers customers specific mechanisms to deposit, withdraw, and transfer money to other accounts. Over the years, governments in several developed and developing countries have launched 5G services to ensure the timely delivery of different social sector schemes to their citizens. Naturally, many banks and financial institutions have capitalized on the opportunities presented by 5G technologies to expand their consumer base across the globe.

The surge in popularity of online banking is attributed to the ease and convenience offered by this mode in conducting different financial transactions. The web applications developed specifically for virtual banking help users pay bills online for various services and products. For instance, most banks provide their customers with net banking facilities through which they settle their credit card dues. Similarly, the use of the Internet has helped individuals complete long-distance transactions within minutes, thus removing time and distance barriers easily. This feature has been especially beneficial for small and medium-scale enterprises as web banking aids companies in reducing their overhead costs, thereby maximizing their profitability.

Role of blockchain technology in online banking systems

In June 2024, Deutsche Bank, a leading investment banking company based in Germany, announced a comprehensive white paper on the interoperability of blockchain in banking systems. Titled ‘Institutional Interoperability: How Financial Institutions Navigate a Multichain World’, several major stakeholders in the industry, including Citi Bank, Mastercard, Northern Trust, Centrifuge, Axelar Foundation, and Metrika have come together to share their expertise on the subject. The primary aim of the research is to develop insights into how these modern technologies might play a role in enabling banks to provide cost-effective and efficient financial services to customers.

Similarly, in October 2024, DBS, a Singaporean financial services corporation, launched a blockchain-powered banking solution for institutional clients, viz., DBS Token Services. While the platform has been specifically designed for digital money and cryptocurrencies, the tool demonstrates the efficiency offered by this innovative technology in real-time settlements, regulatory compliance, and user engagement.

In the last few years, the online banking industry has made significant gains owing to the increased adoption of blockchain technology. The sector, which accounted for $11.43 billion in 2019, is expected to amass a sum of $31.81 billion by 2027, rising at a CAGR of 13.6% during 2020-2027. The decentralized ledger system offered by blockchain technology makes it ideal to record financial transactions and improve transparency in web banking processes. For instance, traditional web-based applications take around 2-3 days for the settlement of fund transfers. This is mainly due to the presence of intermediaries that provide custodial services and need multiple authentication details to process the payments. The slow processing speeds involved in traditional payment systems make them unsuitable for small and medium-scale enterprises, which generally face liquidity issues. In such a scenario, blockchain-powered applications aid in completing the transactions within minutes, thus enhancing the trust factor between the banks and their customers.

Cybersecurity and fraud prevention in online banking using futuristic technologies

While the pace of digitalization of financial services has increased gradually, concerns related to privacy and security remain the biggest roadblock in the full-fledged adoption of online banking services. Moreover, the rise in number of cyberattacks has further discouraged people across the globe from shifting to web banking. The ability of blockchain technology to grant access to authorized entities and identify fraudulent activities makes them ideal for financial transaction systems. This technology helps in connecting multiple stakeholders such as banks, brokers, & clearing houses, thus improving coordination between them and reducing the chances of errors.

Moreover, several financial institutions have collaborated with technology companies to develop web banking software applications embedded with machine learning algorithms to enhance the security of their systems. The ability of ML-based tools to analyze vast volumes of data enables them to uncover potential risks and attacks, thus assisting in early threat detection. Moreover, the predictive maintenance techniques offered by these algorithms help banks forecast the problems that their virtual banking platform might encounter in the future and take necessary steps accordingly. Since most of the identification and detection activities are performed automatically, these financial institutions are able to reduce their IT workloads and expenses drastically, thereby increasing their revenue share. Moreover, the deployment of automation systems aids in bringing down the level of human-induced errors, thus enhancing the level of cybersecurity and threat perception.

The online banking industry is expected to witness major growth in the coming years owing to a rise in penetration of 5G services across the globe. Moreover, the increased adoption of blockchain technology and machine learning algorithms to improve transaction speeds and security is anticipated to create numerous investment opportunities for the industry in the near future.

Contact our experts for the growth drivers and investment opportunities in the online banking industry

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