The advent of “Blockchain” has brought about a dramatic change in the financial sector and how people carry out financial transactions. With this new technology, there is the potential for revolutionizing the whole economy, and currently, it has made a significant impact on global financial services. Within the past few years, some technological innovations are being introduced to help ease the processes and speed of conducting financial transactions. However, blockchain has stood the test of time as it looks like it is here to stay. The most loved thing about the blockchain technology is its ability to power decentralized cryptocurrencies, and there are a good number of them at the moment. The most notable of the cryptocurrencies powered by blockchain is the Bitcoin, which debuted in 2009, and over the years, other alternate coins have been springing up as well, but Bitcoins remain the most valuable.
Blockchain technology has proved to be a game changer with its potential to break more boundaries in the future. However, some obstacles need to be tackled before it can rule the financial sector entirely by achieving the “number one” currency status for financial services. A lot of big guns in the world of finance are willing to back blockchain technology for widespread acceptance as a tool of exchange in business transactions.
Let’s see how blockchain has impacted financial services and the financial sector as a whole.
1. Makes International Payments More Accessible and Faster
Some banks have enabled the movement of money through the use of blockchain technology. Startups have also been established to work with banks so that banks can carry out international payments through blockchain technology. Some of these banks include National Bank of Abu Dhabi, Santander, CIBC, UniCredit, etc. This revelation was made by Ripple, a blockchain startup that makes blockchain technology available to financial institutions. Ripple provides the unique solution of a secure end-to-end flow of money and transactions are verified immediately.
2. Smart Contracts
Smart contracts allow the automatic execution of commercial transactions and agreements. Smart contracts have more security than traditional contracts, and since there are no middlemen, transaction costs get reduced to the bare minimum.
The Potentials of Using Blockchain for Financial Services
Currently, Bitcoin is the most accepted mode of utilizing the blockchain technology, and as mentioned earlier, many financial institutions are willing to explore this technology. Here are a couple of ways that we think blockchain changes the status quo when it comes to business transactions.
1. Near Elimination of Fraud
Despite being a new technology, blockchain has the high potential of eliminating the occurrence of fraud in financial transactions. Blockchain works on a decentralized system compared to traditional systems which are centralized, and as a result, it is tough for a blockchain system to suffer cyber attacks.
As a testament to the potential of blockchain technology to effect widespread reduction of financial fraud, traditional media platforms are planning to adopt blockchain as a means of payment for traditional media buying. In traditional media buying, the sector is rife with fraud due to the presence of intermediaries, a complicated process, and lack of transparency. With the adoption of blockchain technology, the process will be simplified.
Using blockchain technology more securely can be done by using cards with a contactless interface with a higher security level. Smart cards help secure private keys through the use of hardware. They provide user-controlled and untethered access to cryptographic keys, which makes blockchain transactions easy. A smart card can be any of a regular card, a USB device, a microSD card, and other forms of portable card technology that can work with blockchain applications.
2. KYC Regulations
One of the critical policies that all financial institutions adhere to is the Know-Your-Customer Regulation. The KYC regulation is a means for banks and other financial institutions to identify their customers and it was put in place to minimize financial crimes and money laundering activities. With blockchain technology widely adopted, every customer can be verified independently, and the identity of a customer can be availed to other financial institutions since the customer has already been confirmed on the blockchain network. This process saves financial institutions a lot of money and the customer from going through the hassles of the KYC process with every financial institution.
3. Better Mode of Payment
Blockchain promises a wide range of benefits, one of which is a better and more secure way to trade alongside reduced transaction costs and trade settlements within a short time. It will give individuals a far better way to connect and transact with each other without having to deal with the zero transparency and unfair barriers that they will likely face with traditional methods.
The process of getting insurance can be changed entirely with blockchain technology. From premium payments to filing an insurance claim, and investigation to the settlement of claims, the legal contracts can be replaced with smart contracts. Settling unclaimed files will also be easier as the dots are connected through the use of a blockchain registry.
Going by the number of transactions carried out daily in the banking sector, blockchain technology can bridge the gap of missing security and transparency in daily transactions. Customers will have more faith in the banking system since every transaction is concluded within a short time and is highly transparent. Blockchain is potentially the technology that will dominate financial services in the future, and the reasons are quite apparent as stated in this article.