Blockchain technology is referred to as “The New Internet” & is bringing business transformations in diverse sectors. The outcomes even seem quite fruitful for the financial services industry as well. This article will walk you through the ways how this leading technology is focusing to upgrade and simplify the finance domain.
Blockchain – What Is It?
A blockchain can be referred to as a digital ledger allowing the record and verification of the transactions via means of decentralized computer networks. The saved data is protected with the help of Cryptography. By this definition, the technology might look simple, but its advantages are extensive and make this technology stand out from the crowd. Some of the prime benefits are reliability, simplification, traceability, budget-friendly, low error, data quality improvement, pace transaction, decentralization, transparency, and many more.
So, let’s explore some of the key ways Blockchain technology holds the chance to revamp the financial services industry? The objective is to create an overall satisfactory customer experience for everyone.
#1. Asset Management
The earlier trade approaches in asset management used to be quite slow, manual, filled with risk, and cumbersome. The cross-border transactions are getting more complex at the time of reconciling and matching. The non-standard investment practices like loans were also showing a similar level of complex behavior. A variety of parties involved in the trade cycle like dealers, brokers, and intermediaries tend to keep a specific copy of the transactions. It was also a matter of huge inefficiencies and chances of error.
Blockchain is an advanced technology that comes with the capability to streamline the trade processes and lifecycle. With automated control, all parties in the trading will have the accessibility to the same transaction data at a time. This could lead to various infrastructural cost savings, proper data management, pace processing, transparency, less dependency on brokers and intermediaries, low-level reconciliation, and various others.
#2. Insurance & Claims Processing
The modern-day insurance sector is facing a variety of challenges nowadays like fraudulent claims, manual workload, underwriting models, user policies, etc. All these together contribute to degrading the low customer satisfaction.
Blockchain even comes forward with policy creation via smart contracts, which makes it an ideal choice for Blockchain technology. You can avail yourself of the dedicated management, transparency, and traceability with the capability of automated payouts. It will even reduce the risks of fraudulent claims with the insurance of various commodities like diamonds, homes, properties, cars, etc.
#3. Supply Chain & Trade Finance
The entire supply chain of financial trading and transactions is transformed into enhanced opportunities for better contracts and Blockchain. Earlier, financial trading was purely dependent on third parties like banks and clearinghouses. That even used to make the supply chain completely complex, slow, and distorted. There was even a lack of trust factor because of this reason.
The advent of Blockchain has led to the automatic execution of smart contracts on the Blockchain for hassle-free transfers. The need and dependency of the banks to get the letter of credit have been curbed. Because of the unavailability of any middlemen in the process, there is a sheer authenticity and assured transparency of the product origin.
#4. International Payments
What’s the reason that international payments were taking so much time to get completed? Although the global payments sector is massive, yet full of slowness, high cost, error chances, non-traceable, etc. The problem of money laundering was one of the major problems as a result of all these shortcomings. The international payments sector was in dire need of revamping and the Blockchain came into the right play.
Banks are in the process of adopting Blockchain to avoid the hassle with global payments and make the transaction speed as fast as within a day. The Blockchain-focused apps and banking payments software are putting up a basic step to introduce the real-time payment possibility with fewer manual errors, operational charges, and fraud cases. Although the practice is very new, the leading banks and third-party financial institutions are looking forward to it. Blockchain technology is the key to future services. It will play a vital role in bringing more ease and safety to the banking processes. Shortly, the customers can witness more choices and convenient options.
#5. KYC Compliance
The local regulator body is responsible to comply with the financial institutions on a number of requirements. They are even liable to report to the same local body. Know Your Customer (KYC) is a leading requirement in such a scenario, but it could lead to more time-consuming, and lack of automated customer identification and integration. These are anyways a must to efficiently carry out the work.
Blockchain technology is able to provide a digital ID or source of information for seamless document change between banks and third-party external agencies. It can even help with automated account setup and opening, low resource and cost while maintaining the data privacy and legal requirement. The combination of KYC and Blockchain is what can bring the next-level transparency to legal money transactions.
What’s the challenge?
The major challenge with Blockchain adoption is where to begin. The finance institutions should start defining the strategy and use case before choosing and implementing Blockchain. Adopting the Blockchain approach with agility is also delivering business value. Be ready for the inevitable changes all along the way.
Hence, in a nutshell, Blockchain technology has already made its mark in the finance vertical. In addition, the future aspects of Blockchain technology are also predicted to grow at a huge scale.