How Blockchain is Revamping Banking and Financial Services

• Toshendra Kumar Sharma
• May 01, 2020

If you are wondering how blockchain is disrupting banking and financial institutions, you have landed on the right page. The article illustrates the benefits of blockchain over traditional banking and presents various use cases of blockchain in the finance domain.

 

Learning Of Blog

 

• Introduction
• Blockchain Over Traditional Banking
• Major Use Cases of Blockchain in Finance Domain
• Summery

 

Introduction

 

Gone are the days when blockchain was solely known for cryptocurrencies, today technology has stepped far beyond just powering Bitcoin. Blockchain is a distributed ledger that has emerged as one of the most groundbreaking applications and has amazing potential to transform almost every sector, including financial institutions, healthcare, supply chain, and many more. Due to its key features, such as transparency, decentralization, and immutability, the most popular domain of blockchain use is in the banking sector. The finance and banking sector has started adopting this technology to shift from conventional banking practices to convenient banking services as blockchain ledgers offer innovative solutions.

 

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Blockchain Over Traditional Banking

 

Traditional banks and financial institutions have faced several challenges for decades, such as inefficient payment clearing processes, inability to stop fraud, the limited number of currency options, and many other issues. Here Blockchain technology comes into picture that can eradicate all the existing problems.

Blockchain is a series of connected blocks containing a record of data that is governed by different peers, not owned by any single entity, and secured by the cryptography principle. Blockchain ledgers facilitate bilateral settlement by eliminating intermediaries’ failures, collateral costs, delays, minimize credit risks, faster implementation of transactions, enhanced transparency in operations, amongst others.

 

Major Use Cases of Blockchain in Finance Domain

 

Over the past few years, the technology has matured for enterprise-grade use demonstrating the benefits like security, transparency, trust, programmability, privacy, high-performance, and scalability. Let’s explore how this technology is utilizing such benefits and revamping banking sector and finance institutions.

Investment Management

 

Capital firms, real estate funds, private assets firms, and specialty markets are facing demands to improve risk management and address the increasing complexity of ever-changing regulations. Blockchain can efficiently streamline asset and stakeholder management. The technology allows seamless stakeholder engagement with digitized assets and services, automated fund launch, fractionalization, digitization of portfolio and existing holdings for broader market access, customizable built-in privacy settings for transaction confidentiality, and other shareholder rights and obligations programmed into digital assets.

 

 Payments and Remittances

 

Today, global payments and remittances are executed by several intermediaries that charge fees for their services and takes several days in transacting. Blockchain can streamline payment and remittance processes, significantly reducing costs and settlement times. It allows secure and accelerated domestic retail payments, wholesale and securities settlement, and secured cross border payments. The real-time gross agreements between central banks, commercial banks, and other independent banks are also smooth and fast. Blockchain has no geographical limitations, thus enables secure P2P transfers globally.

 

Trade Finance

 

Trade finance refers to the processes, infrastructure, and funding that support international trade supply chains. The industries depend on paper-based processes that are inclined to secure susceptibility. Single transactions can take a few months to prepare the entire process. Blockchain can be of great use in administering trade finance transactions for the banks. Under the blockchain, all the necessary documents such as Tax invoices, Bill of lading, or shipping can be recorded in a decentralized repository, where all the authorized parties can access the data in real-time. This will improve efficiency tremendously and will allow the authorized parties to track the transactions with ease.

 

Digital Identity Verification

 

For online financial transactions to perform, identity verification is mandatory. With blockchain in fintech, users can choose how they identify themselves and with whom they agree to share their identity. Although they still need to register their identity on the blockchain, they do not need to repeat the registration for each service provider if those providers are also powered by blockchain.

 

Insurance 

 

Insurance companies engage in a highly competitive environment, where both corporate and retail customers expect the best value for money and exceptional online experience. Blockchain technology represents an opportunity for positive growth and change in the insurance industry. The technique can bring significant efficiency gains along with transparency, cost savings, fraud mitigation, and faster payouts while allowing data to be shared in real-time between various parties in a traceable and trusted manner. It also enables new insurance practices to build better products and market solutions.

 

Summary

 

To sum up, we can say that technology offers several benefits for each use case as it can lower the costs and bring faster processing of transactions. It eliminates the concept of intermediaries for transaction authorization and reduces paperwork and bureaucracy. Blockchain can streamline the entire trading process, but whether the technology will replace traditional banks is unanswered. But one sure thing is the technology is capable of disrupting the finance industry and creating something innovative.

 

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