One of the most discussed subject in the financial services industry today is Blockchain technology. We are gradually understanding what a Blockchain is, but how can we best use this technology within your business? In this series we will discuss few Blockchain use cases, such as Asset Management, Insurance, Supply Chain & Payments.
Industries including payments, banking, security and more will all feel the impact of the growing adoption of this technology. Profit centers that influence financial inefficiencies will be stressed. The introduction of Blockchain to the finance industry is similar to the effect of robotics in manufacturing: change in the way we do things, leading to fewer jobs, is unavoidable.
So, the reason behind our excitement? Since, the advantages are wide-ranging - decentralization, reliability, simplification, transparency, traceability, cost saving, reduced room for error, faster transactions and improved data quality. Let's take a look at some explicit ways Blockchain will transform the Financial Services industry - eventually forming a much more satisfying customer experience among all. Blockchain technology can possibly disturb the financial industry that we know and use today. Here are just few of the top ways I believe it will transform finance and banking:
Blockchain technology can streamline & modernize the entire trade process and offers an automated trade lifecycle where all parties in the transaction have access to the exact same data about a trade. in this situation, the technology would considerably lessen the infrastructure costs, allow effective data management, transparency, faster processing cycles, minimal reconciliation and even eliminate the middlemen such as brokers.
Producing policies as smart contracts on the Blockchain is one of a kind use case for insurance. It offeres through control, transparency and traceability for each claim and could lead to automatic pay-outs. Blockchain technology would also advance the risk modeling for the sector, Blockchain would significantly dimnish fraudulent claims by capturing the origin and ownership of diamonds, paintings, homes, cars and other assets to be insured.
Prevailing supply chains are not simple, slow, scattered, involve several parties across the world and they usually don't even trust each other(hence the need for trusted third parties such as banks and clearing houses to mediate). Automatically executing Smart Contracts on the Blockchain to transfer titles to goods and money removes the need for banks to provide products such as Letters of Credit, radically lessens the cost by cutting out the middlemen (and their fees) and creates a trusted network of assured authenticity and origin of products being supplied.
Blockchain can advance by speeding up and streamlining the process, while dropping the costs significantly and cutting out many of the traditional middlemen. At the same time, it would make money remittances more affordable. Until now, the costs of remittance were 5-20%. Blockchain technology could reduce the costs to 2-3% of the total amount and provide guaranteed, real-time transactions across borders.
Since Blockchain can store any kind of digital information, counting with computer code, Blockchain enables us to have smart contracts. This code could be programmed to create contracts or implement financial transactions once a certain set of criteria has been attained-delivery of products could signal an invoice to be paid for example.
These regulations are planned to reduce money laundering and terrorism activities by having requirements for business to authenticate and recognize their clients. Blockchain would allow the independent verification of one client by one organization to be accessed by other organizations so the KYC process wouldn't have to start over again. The reduction-in administrative costs for compliance departments would be significant.
With the blockchain, people can start trading or resolve their debt instruments directly, and access loans from peers easily & transparently.
Blockchain influences its broad peer-to-peer network and utilizes innovative cryptography to avoid the double spend problem. Hence there's no need for intermediaries.
To Identify the reputation of peers are verifiable, and it is cryptographically secured on the Blockchain. Hence , no need for trust ensuring.
Being a ledger that's accomplished online, Blockchain can extremely enhance audit and reporting. Making the procedures more transparent & accessible in real time.