Blockchain: Is it the Future of Banking and Finance Sector?
With blockchain in a place, we can say that the future of banking and finance sector could be without banks and financial institutions. However, financial transactions will not go anywhere; rather they would be carried out effortlessly and approved within fraction of seconds. This will ultimately result in significant cost reduction and boost in efficiency. Let’s understand how this blockchain technology works and is it really the future of banking and finance sector!

Impact of Blockchain technology and its relation to future of banking and finance sector
Including the future of banking and finance sector, the blockchain technology is going to disrupt many more industries.

1. Syndicated Loans and credits
On an average it takes 9 days for US companies to raise money through syndicated loans. Blockchain technology can supercharge syndicated loans with the level best automation in processing transactions. The blockchain offers ability to eliminate almost all paper-based interactions in the syndicated loans market. Smart contracts can enable parties involved to settle trades using tokens rather than traditional wires. This, in turn, prevents the ongoing need of payment reconciliation.
2. Identification of clients and KYC management
Know Your Customer (KYC) and customer due diligence — in these two areas banks and financial institutions invest most.
According to Thomson Reuters Survey, banks nearly spend somewhere between $60 million and $500 million annually for the same.
In addition, these are unavoidable as they help to curb money laundering activities.
The implementation of blockchain technology in banking and finance would enable a particular organization to access the verification details of a client by another organization. Hence, it avoids repetition of KYC procedures. This will directly lessen the burden of administrative costs and compliance costs.
The KYC blockchain can enable recording of structured information, its assessment and sharing it across users’ network with the help of advanced cryptography.
The practical examples are banks such as HSBC, OCBC and Tokyo Mitsubishi. These have adopted distributed ledger platform and are already trialing an association in the Asian markets operating on a blockchain.
3. Swift payments — clearing and settlements
Accenture has estimated that the biggest investment banks could save $10bn by using blockchain technology to improve the efficiency of clearing and settlement
The implementation of blockchain technology can have utmost impact on payments processes. The blockchain technology works for 24*7 unlike banks and financial institutions that operate for fixed working hours per week. This ultimately speeds up dispensation. The processing of payments, claims and other transactions can be done at lower processing costs and without involving any third party. Even interbank transfers can also be done in no time using distributed ledger technology.
Further, it is quite cost-effective in cross border payments. The transfer pricing has always been proved costly and complex in international transactions. Blockchain can simplify it as well as speed up the entire process at a quite low cost.
4. Reduction in processing costs
The full-fledged adoption of blockchain technology in the banking and finance sector can drastically reduce processing costs. It can automate tedious claims processing and hence reduce costs. Currently, the actual money transfer is processed through a system of intermediaries. At each stage,, each intermediary contributes additional transaction cost. The blockchain technology eliminates all these hustle and bustle of additional costs.

However, banks and financial institutions first of all need to build required infrastructure in order to capitalize on this potential. It can address the limitations of the credit system and as a result, boosts financial inclusion.
5. Trade finance

The impact of blockchain technology on the future of banking and finance sector is not only limited to the above said areas. Also, it does impact trade finance and share trading.
The managing director of R3, Charley Cooper, says: “Trade finance is an obvious area for blockchain technology”
Currently, trade finance includes involvement of multiple parties and middlemen. Over and above, there is high level of manual recording, paper work, approvals, and other time consuming stuffs involved. When too many tasks need to be handled for one particular transaction, chances are high of committing errors, duplicating records and inefficient workflow.
The implementation of blockchain here enables much more accuracy than existing system. In addition, process of settlements are swift as well as transparent. The credit goes to digital ledgers and other legal smart contracts. It allows transparency without involving third parties.
Signing off
The biggest advantage of blockchain is they are inherently resistant to modification of the data contained in the block. And, the biggest threat for banking and finance sector is data manipulation and identity theft. Hence, the blockchain is the best fit to address this challenge. It will not be zilch wrong to say that the future of banking and finance sector lies in the hands of blockchain technology. However, in the current state, there are some resistance towards its adoption. What is your take on this? Do you ship blockchain in finance and banking sector or do you believe that it’s just a bubble which will collapse soon. We’d love to hear from you.
The original post was published on: https://soluloid.com/blockchain-and-banking/
