How Blockchain technology is transforming the financial services sector
Blockchain offers banks a decentralized ledger. All the transactions of a financial institution are stored in multiple controlled-access computers creating a trail that no one can edit or delete. When a financial institution adopts Blockchain, the technology takes over most of the company’s workflows including record keeping, equity management, debts management, and cybersecurity.
When Did Blockchain Enter the Financial Sector?
Blockchain and Bitcoin came at almost the same time. Financial institutions were not ready to jump into the bandwagon but they later did. In 2015, NASDAQ conducted Blockchain share trading using their platform, Linq. This first trade made it possible for financial institutions to trust Blockchain and find ways to hop into the technology. Using the system, the NASDAQ opened doors for banks and financial institutions to use the ever-accessible Blockchain technology. Using Blockchain will reduce the operational costs of banks by more than 25 percent.
After NASDAQ, several banks adopted Blockchain including: $JPMorgan(JPM.US$ , $Goldman Sachs(GS.US$ $Bank of America(BAC.US$
How are Financial Institutions Using Blockchain?
Cross-Border Transactions
Blockchain is actually capable of disrupting the whole banking system that we follow currently. Though not fully implemented by banks worldwide, some of the banks have started using Blockchain to complete transactions and perform cross-border payments now. In the past, cross-border payments have been a preserve of Swift and Western Union but now banks can use Blockchain to send money anywhere in the world.
Blockchain is actually capable of disrupting the whole banking system that we follow currently. Though not fully implemented by banks worldwide, some of the banks have started using Blockchain to complete transactions and perform cross-border payments now. In the past, cross-border payments have been a preserve of Swift and Western Union but now banks can use Blockchain to send money anywhere in the world.
Removing Third-Parties from Stock Exchange and Share Trading
The traditional process of a stock exchange is long with so many third-parties involved. This process can take more than 2 business days. With Blockchain, the unnecessary intermediaries do not have to be there as buyers and sellers can access trading from their computer anywhere in the world.
The traditional process of a stock exchange is long with so many third-parties involved. This process can take more than 2 business days. With Blockchain, the unnecessary intermediaries do not have to be there as buyers and sellers can access trading from their computer anywhere in the world.
Digital Identity Verification
Identity verification involves many steps and takes some time to complete. Before a transaction goes through, the bank needs to perform either face-to-face verification through an online video call or at the counter, authentication after logging into a service, and authorization. Customers have to take all these steps for every financial service they use. However, with Blockchain, customers can re-use their identity across different platforms.
Identity verification involves many steps and takes some time to complete. Before a transaction goes through, the bank needs to perform either face-to-face verification through an online video call or at the counter, authentication after logging into a service, and authorization. Customers have to take all these steps for every financial service they use. However, with Blockchain, customers can re-use their identity across different platforms.
Syndicated Lending
Syndicated loans involve a group of banks lending to individuals. Due to the complex nature of the process, syndicated lending takes up to 19 days when banks use traditional lending means. Such banks face the challenges of customer verification. The banks also have to operate within the Bank Secrecy Act and the Anti-Money Laundering laws. As such, the bank is tasked with detecting, preventing, and reporting any money laundering-related activities.
Syndicated loans involve a group of banks lending to individuals. Due to the complex nature of the process, syndicated lending takes up to 19 days when banks use traditional lending means. Such banks face the challenges of customer verification. The banks also have to operate within the Bank Secrecy Act and the Anti-Money Laundering laws. As such, the bank is tasked with detecting, preventing, and reporting any money laundering-related activities.
Accounting, Auditing, and Bookkeeping
Accounting involves a lot of paperwork and the digital developments in accounting are slow. Regulatory requirements posit that financial institutions have to confirm data integrity and validity. With Blockchain, banks and other financial institutions can streamline compliance procedures and reduce cases of double entry in bookkeeping.
Accounting involves a lot of paperwork and the digital developments in accounting are slow. Regulatory requirements posit that financial institutions have to confirm data integrity and validity. With Blockchain, banks and other financial institutions can streamline compliance procedures and reduce cases of double entry in bookkeeping.
Easy Access to Credit Reports
Through a blockchain-based system, both Businesses and individuals can receive quick loans based on their previous credit and repayment history. In the traditional method, credit scores by credit report companies aren’t always accessible for smaller companies. These traditional methods are also not ideal as it involves paying a company to access its sensitive data. Through Blockchain, borrowers can make their reports accurate, transparent, secure, and shareable.
Through a blockchain-based system, both Businesses and individuals can receive quick loans based on their previous credit and repayment history. In the traditional method, credit scores by credit report companies aren’t always accessible for smaller companies. These traditional methods are also not ideal as it involves paying a company to access its sensitive data. Through Blockchain, borrowers can make their reports accurate, transparent, secure, and shareable.
Hedge Funds
A hedge fund is a pooled fund or an investment partnership between a group of Institutional investors and a fund manager. Hedge funds maximize returns for the investors while minimizing losses. The number of hedge funds using cryptocurrencies has increased.
A hedge fund is a pooled fund or an investment partnership between a group of Institutional investors and a fund manager. Hedge funds maximize returns for the investors while minimizing losses. The number of hedge funds using cryptocurrencies has increased.
Other Areas Where Blockchain is Used:
Financial institutions also apply Blockchain in crowdfunding, peer-to-peer transfers, and in trade finance. More and more financial institutions are adopting Blockchain technology in their operations. However, some are still hesitant. The increasing number of blockchain-powered technologies will see financial institutions streamline their operations. Most of these technologies are disrupting the financial industry for good.
Financial institutions also apply Blockchain in crowdfunding, peer-to-peer transfers, and in trade finance. More and more financial institutions are adopting Blockchain technology in their operations. However, some are still hesitant. The increasing number of blockchain-powered technologies will see financial institutions streamline their operations. Most of these technologies are disrupting the financial industry for good.
(CR:Rithesh Raghavan)
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