Blockchain is quickly emerging as one of the main disruptors of the fintech revolution. The technology underlying cryptocurrencies has endless potential, including ACH solutions.
The whole world is witnessing the digital transformation of existing banking and financial systems. Modern technologies are revolutionizing the entire banking process by delivering better results with greater accuracy, speed and efficiency. Fintech is one of the fastest growing global sectors with reports predicting a CAGR of 26.87%. The increase in the adoption of digital payments, e-commerce, the global proliferation of smartphones, all of this is attributable to the global success of fintech. Last but not least, blockchain technology serves as a huge platform for creating next-generation banking innovations such as automated clearinghouse solutions.
The role of clearinghouses in banking
A clearing house ensures that the buying and selling parties observe and comply with all contractual obligations when settling transactions. They protect banks by preventing a counterparty from going back on a transaction that has already been settled. Clearinghouses authenticate and confirm a transaction.
It is thus easy to understand the importance and scale of the transactions carried out by clearing houses on a global scale. They are an integral part of the global economy and require absolute accuracy when recording transactions. And, they also need an efficient ledger system to maintain proper transaction records. Automated clearing houses (ACH) are an effective solution.
ACH: the need for automation
Several arguments can be made in favor of automation in the banking, insurance and finance sectors. The most important include:
- Better use of human resources
Processes programmed for automation are routine, repetitive and boring. By assigning them to robotic process automations (RPAs), a clearing house can wisely utilize its available human workforce in more productive channels.
- Faster operating speeds
A repetitive task once programmed and automated can be accomplished with greater efficiency than human effort. Processes are simply completed faster, up to 80%.
- Reduced risk of error
Automation avoids errors. The possibility of an error occurring is eliminated during the QA, development and testing phase of the automation program.
Implementing the initial automation setup is usually a one-time investment and may require maintenance from time to time. The process is cheaper and more efficient in the long run.
Automation stores acquired data using digital means. This avoids the use of paper, contributing to a greener environment.
Blockchain-powered ACH solutions
An ACH solution using blockchain architecture speeds verification of electronic payments and money transfers during mediation and settlements between parties. They use the robust blockchain network architecture to facilitate effortless fund transfer between participants and fraud prevention. Blockchain solution providers specializing in ACH blockchain design products with a system payment API, allowing businesses to perform payment transactions on the client side to ensure ACH payments.
By using ACH blockchain solutions, it is possible for insurance companies to receive payments on time while their customers fulfill the claim, simultaneously. Blockchain-powered software solutions inherit the features of a blockchain network: real-time access, high security, privacy, immutability, transparency, etc.
How are financial transactions carried out in a blockchain?
Conventional blockchain-based financial transactions are carried out in three steps:
- User authentication
The blockchain network authenticates the identity of member nodes using digital signatures. It has a cryptographic mechanism with a pair of public and private keys. Each user keeps a private key that functions as a digital signature. Using duplicate keys validates both transactions and user identity, preventing tampering with records.
- Content Verification
A sender needs the public key of the recipient’s digital address to complete a transaction. The process traces the entire transaction from acquiring Bitcoin or crypto from the sender, optionally inducing the node transaction, and sending the amount to the receiver.
- Blockchain Network Operation
The blockchain network authenticates and verifies the key signature and ownership of the sender’s cryptography. Once complete, a member of the node assembles the sender-receiver transaction on a block of data with several other transactions. The block of data then becomes part of the blockchain’s distributed ledger confirming the new ownership of the assets associated with the transaction.
Features of an ACH Blockchain
Blockchain solutions for automated clearinghouses include the following features:
The application program interface is versatile, able to work in banking, insurance and other financial sectors.
Blockchain ACH solutions are capable of facilitating seamless transfer of funds.
The solutions are customizable, with different products at different price ranges as needed.
Although fundamental in nature, blockchain-based innovations easily integrate into existing processes, maximizing returns while reducing costs and setup time.
Blockchain solution providers offer constant updates on their payment processing solutions, helping organizations stay abreast of the latest technological advancements.
The global financial industry is already undergoing a digital transformation using modern technologies to deliver better services in a cost effective manner. Blockchain technology with its distributed sharding mechanism offers several ways to improve existing services.
It eliminates intermediaries between financial transactions, resulting in a massive drop in payment processing fees, both domestically and internationally. The results are imminent with global blockchain industry projections showing a CAGR of 68.4%, growing from USD 4.9 billion in 2021 to USD 67.4 billion in 2026.