Given nowadays complex macroeconomic environment, as well as regulatory and investors’ pressures, banks are forced to seek new ways of lowering costs and increasing profitability. In such a setting, technological innovations such as blockchain could become a lifeboat for banks.
Similar to many innovative technologies blockchain has been accepted by banks, entrepreneurs, technologists, scholars, regulatory authorities, and many more with quite a portion of enthusiasm. Multiple analysts predict positive developments as a consequence of blockchain adoption, such as new revenue models, efficiency gains, cut of millions in costs, and significant lowering of risks industry-wide.
Increasing interest in Blockchain within the financial services industry
The interest in Blockchain continues to rise exponentially, especially within the financial services industry: Re-establishing the concept of trust, blockchain enables direct P2P transactions. Unlike traditional transactions, which heavily rely on central counterparties (i.e. banks) for clearing and storing information, blockchain transactions are managed by a network of nodes – which translates into quicker settlement times, fewer redundant intermediaries, and ultimately fewer costs. Cryptocurrencies hold the promise of a new native digital asset class without a central authority.
With emerging use cases with each
passing day, blockchain technology has proved to be a game-changer with its
potential to break more boundaries in the future.
Let’s have a look at how blockchain
has impacted financial services and the financial sector as a whole.
FRAUD
REDUCTION
As the involvement of money in any
situation leads to increased chances of fraudulent activities, blockchain
technology has the high potential of eliminating the occurrence of such
activities in financial transactions. A centralized database system is
vulnerable and highly prone to cyber-attacks but the blockchain is based on a
decentralized system and as a result, it is tough for a blockchain system to
undergo cyber-attacks.
Since each transaction is stored in
the form of a block with a cryptographic mechanism in the blockchain, there is
no chance of failure and corruption. Moreover, all the blocks are linked to
each other which helps to track the breach and provides the hacker with no time
to make changes in the overall system. The process will be simplified with the
secure Blockchain system in place.
KNOW
YOUR CUSTOMER (KYC)
One of the critical policies that all banks
and financial institutions are strictly concerned about is the
Know-Your-Customer Regulation. Under KYC regulation, banks and other financial
institutions identify their customers to minimize financial crimes and money
laundering activities.
With blockchain technology widely
adopted, the independent verification of each client by one bank or financial
organization would be accessible for other banks to use so that the KYC process
doesn’t have to be restarted again.
This process saves financial
institutions a lot of money and reduces administrative efforts.
MORE
ACCESSIBLE AND FASTER INTERNATIONAL PAYMENTS
Blockchain technology solves a lot
of problems faced by banks and financial sectors these days regularly. Several
banks have enabled the movement of money through the use of Blockchain
technology. Start-ups have also been established to collaborate with banks so
that banks can execute international payments through blockchain.
Blockchain promises a wide range of benefits, one of which is a better and secure way to connect and transact with each other without having to deal with zero transparency and unfair barriers that individuals face with traditional methods.
SMART CONTRACTS
The application of smart contracts
can prove particularly important in the banking and finance sector as it allows
the automatic execution of commercial transactions and agreements. Smart
contracts, when used for financial transactions, would have more security than
traditional contracts, and since there are no middlemen, transactions costs get
reduced to the bare minimum. This will ensure the transaction will be approved
only if all the written conditions of the code are met, also the chances of
error at the time of execution are dropped drastically.
CLEARING
AND SETTLEMENT
The global cash settlement for fixed income, equity, and derivative products in
various currencies is slow, costly, and complicated. Because of the large
number of parties involved, it takes several days to settle. By eliminating a
large number of intermediaries, blockchain enables instantaneous settlement
leading to substantially lower costs.
Future
banking eco-system
The future
banking ecosystem will look very different from now. Triggered by blockchain
technology and its disruptive character, this ecosystem will be one of open
innovation, collaboration, bank-Fintech partnerships, and increased
competition. While there will be a much lesser need for middlemen, there will
be a growing need to cooperate between banks and other parties in order to get
the most advantage from this and new technologies. On the other hand, there
will be more intense competition from newcomers.
Email at: - sales@blockchaindevelopments.io
Connect
with expert team: - https://bit.ly/2B32Az7
Comments
Post a Comment