Automated Clearing House (ACH) Powered by Blockchain: A Transformation in Clearing House Solutions
Blockchain is fast emerging as one of the main disruptors of the fintech revolution. The underlying technology behind cryptocurrencies has infinite potential, including ACH solutions.
The whole world is witnessing the digital transformation of the existing banking and finance systems. Modern technologies are revolutionizing the entire banking process providing better results with higher accuracy, speed and efficiency. Fintech is one of the fastest growing global sectors, estimated at a CAGR of 26.87% in the report. Growth in digital payment adoption, eCommerce, global smartphone proliferation- all accounted for global fintech success. Last but not least, blockchain technology serves as a giant platform for building next generation banking innovations such as automated clearing house solutions.
Role of Clearing Houses in Banking
A clearing house ensures that both buyer and seller parties abide by and comply with all contractual obligations during deal settlement. They protect banks by preventing the counterparty from going back on transactions that have already been settled. The clearing house certifies and confirms the transaction.
Thus it is easy to understand the importance and magnitude of transactions carried out by clearing houses on a global scale. They are integral to the global economy and require absolute accuracy when registering transactions. And, they also require an efficient ledger system to maintain proper transaction records. Automated Clearing Houses (ACHs) are an efficient solution.
ACH: The need for automation
Several arguments can be made in support of automation in the banking, insurance and financial sectors. Major people include:
Better Utilization of Human Resources
The processes prescribed for automation are routine, repetitive and boring. By entrusting them with Robotic Process Automation (RPA), a clearing house can judiciously use its available human workforce in more productive channels.
Fast Operating Speed
Once programmed and automated, repetitive tasks can be accomplished with higher efficiency than human efforts. Processes are completed just as fast, by as much as 80%.
Less Chance Of Error
Automation prevents errors. The possibility of error occurring during the QA, development and testing phase of the automation program is eliminated.
Initial automation setup implementation is usually a one-time investment and may require maintenance from time to time. This process is cheaper and more efficient in the long run.
Automation stores the data obtained using digital means. It prevents the use of paper, thereby contributing to a greener environment.
Blockchain-powered ACH Solution
An ACH solution utilizing a blockchain architecture accelerates the verification of electronic payments and money transfers during interparty arbitration and settlement. They utilize a robust blockchain network architecture to facilitate seamless fund transfer and fraud prevention between participants. Blockchain solutions provider specializing in blockchain ACH design products featuring system-payment APIs, empowering businesses with payment transactions on behalf of the customer to ensure ACH payments.
Using blockchain ACH solutions, it is possible for insurance companies to receive payments on time while their customers realize claims simultaneously. Blockchain-powered software solutions inherit the characteristics of a blockchain network: real-time access, high security, privacy, immutability, transparency, and more.
How are financial transactions accomplished in the blockchain?
Traditional blockchain-based financial transactions are completed in three phases:
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 holds a private key that acts as a digital signature. The use of dual keys validates both the transaction and the user’s identity, preventing records from being tampered with.
The sender needs the public key of the recipient’s digital address to complete the transaction. The process traces the entire operation starting from the sender’s bitcoin or crypto acquisition, optional node transaction incentives, and sending the amount to the recipient.
Blockchain Network Operation
The blockchain network authenticates and ensures the sender’s key signature and crypto ownership. Once completed, a node member assembles the sender-recipient transaction on a data block along with several other transactions. The data block then becomes a part of the blockchain’s distributed ledger that verifies new ownership of the assets associated with the transaction.
Features of Blockchain Automated Clearing House
The Blockchain Solution for Automated Clearing House includes the following features:
The interface of the application program is versatile, enabling it to function in banking, insurance and other financial sectors.
Blockchain ACH solutions are able to facilitate seamless fund transfers.
The solutions are customizable, featuring different products at different price ranges as per the requirements.
Despite being fundamental in nature, blockchain-based innovations are easily integrated with existing processes – maximizing returns while minimizing costs and setup times.
Blockchain solutions providers provide continuous updates on their payment processing solutions, helping organizations stay updated with the latest technological advancements.
The global financial sector is already undergoing a digital transformation using modern age technologies to provide better services in a cost effective manner. Blockchain technology offers many ways to improve existing services with its distributed sharing mechanism.
It eliminates middlemen or intermediaries in the middle of financial transactions resulting in a drastic drop in payment processing fees both at the national and international level. The results are imminent with estimates of the global blockchain industry showing a 68.4% CAGR, expected to grow from US$4.9 billion in 2021 to US$67.4 billion in 2026.
Source: Arka Roy, Finextra