Today’s finance industry has its roots in the 19th century. It has come a long way since those early days with a major transformation from merchant banking to open banking. Today’s financial institutions consist of a range of business operations that could never have been conceived a century ago. These institutions are broadly classified into a deposit, contractual and investment categories. Blockchain technology is now ushering in the latest wave of change, with immense potential to transform businesses by reducing the costs and creating a safer business environment.
Blockchain is decentralized, distributed, open ledger that immutably records transactions across multiple parties. These transactions remain unaltered and transparent which and stored globally in near real-time. Taken collectively, the trust models involved opens the door for the creation of shared business models supporting new innovative products and services.
Between financial institutions, huge numbers of transactions occur every day from locations around the world. Blockchain development services benefits this global financial system with features such as decentralisation, transparency, programmability and scalability. It brings cost savings through the use of an immutable transaction ledger and algorithms which replaces the need for a traditional central authority. Additionally, it provides customisable digital security, improving financial services through real-time monitoring, fraud minimisation and easy customer identification programmes.
Reshaping the Finance Industry with Blockchain Technology
Blockchain has the potential to be used across major financial services. Examples include asset and wealth management, trade finance and insurance. Trade finance is expensive, involves high volumes of data and is time-consuming. The use of smart contracts for trade clearance and settlements across public networks makes it cost-efficient by assisting their structures and digitising their lifecycle. A new market opportunity can be created by re-engineering economic models to use distributed ledger technology and thereby establishing digital identities.
Blockchain application development services aids capital markets by using decentralised services to reduce the number of failure points, human errors, settlement times and therefore, costs. The associated asset tokenisation makes programmable trading easy and manageable. This creates a broad market with supporting fractionalised ownership leading to easy liquidation and decreased capital cost. Blockchain allows equity firms and real estate funds to adapt to dynamic decision-making structures. It assists in credit scoring, loan syndication and asset collateralisation through streamlined banking. It also reduces counterparty risk, issuance and settlement times, precisely streamlining the data verification with authenticated documentation. Furthermore, it can automate the claims process with the help of smart contracts and the disbursement of insurance payments. Blockchain assists in investment financing through creating digitised assets for seamless stakeholder engagement, acting transparently for both investors and stakeholders.
The Need for Blockchain in Finance
As recently as two decades ago, banks relied on paper and long-standing traditional methods. These methods were time-consuming, cumbersome and difficult to process. The introduction of blockchain into this world brings with it the benefits of reliable technology and decentralisation, helping also with scalability and security issues. Previously, any transaction from a bank needed an intermediary, which came in with associated risk factors; blockchain can process transactions rapidly without any such risks. Blockchain is still in its early stages of being adopted, but signs are that financial institutions are beginning to adopt it for mainstream business processes. The early adopters here are securing their roles in this evolving ecosystem.
Distributed ledger technology is immutable and highly secure. It achieves this by leveraging the power and storage of countless computers in locations all around the world. By storing accurate records of transactions in this way, blockchain is virtually tamper-proof. This protection from hackers is a major attraction for financial institutions.
Use Cases of Blockchain in Finance
dApps development services offers financial institutions ideal solutions for many of today’s problems. It helps in safe and easy transactions with reliability between trading partners. Furthermore, it assists in fraud detection and reduces transaction fees amongst many other benefits.
International Transactions:
Traditionally, cross-border transactions were expensive and time-consuming, requiring processing through multiple banks. But, blockchain reduces this time significantly, with enhanced accuracy and cost-effectiveness as major added benefits.
Credit Reports:
Credit reporting with blockchain maintains transaction ledgers and personal account data. These digital ledgers are decentralised which means they are tamper-proof, accurate and more secure. eClearance and settlements are maintained digitally for faster processing.
Identity Verification:
Blockchain-enabled authentication helps financial institutions and banks more securely to identify their customers. Through this, it boosts the verification process and thereby increases the trust of the public. It also protects against fraud and money laundering as the security keys used by all transaction parties are marked securely onto the ledger.
Conclusion:
Blockchain has established its rightful place in the finance industry. We can clearly see that it has huge potential to improve the industry through digital identity verification, asset tokenisation, credit scoring and more. Implementing blockchain can only bring positive benefits for all concerned. We strongly believe that by combining traditional banking with blockchain technology, financial institutions will have an advantage over their more traditional competitors who are yet to move their business models into the 21st century.
