Blockchain Applications: How Blockchain Can Transform the Financial Services Industry
Despite the recent alarming fluctuations in the value of bitcoin and other cryptocurrencies, the interest in cryptocurrencies remains at an all-time high. From the man on the street to banks, financial services firms, and large corporations, the world is trying to figure out how to best take advantage of blockchain, the disruptive technology behind cryptocurrency.
Blockchain is expected to transform the way we do banking and finance. Deloitte’s 2018 survey of 1,000 global blockchain-savvy executives shows that 64 % believe that the new technology will disrupt the financial services industry. It is not surprising then that the industry is leading the way in using blockchain to reexamine their processes and functions. During 2017–2018, most of the banks have adopted blockchain technology as part of their strategy with the hope to improve their operations, reduce their infrastructure, and achieve savings.
Some may think that the most obvious way to make use of blockchain in the financial sector is through cryptocurrencies like bitcoin. Indeed, blockchain has the potential to transform the payments and generally money transfer processes. Not only would it enable higher security, but also lower costs for banks to process money transfers, making the exchange of value faster and more efficient. At the moment, there are various intermediaries in the payment process, but experts predict that with blockchain going mainstream, they will no longer be needed.
Blockchain has the potential to reduce fraud in the financial world. According to PWC’s Global Economic Crime Survey, 45% of financial intermediaries, such as stock exchanges and money transfer services, suffer from economic crimes, which include asset misappropriation, money laundering, cybercrime, and many others. Another issue is identify fraud that cost consumers $16 billion in 2016. Blockchain technology allows for personalized, secure digital IDs to become a reality. The distributed ledger is constantly reconciled and can only be updated when verified by both parties or users. At the same time, blockchain allows for permissioned networks, empowering users to determine what personal information they want share, as well as where and with whom they want to share it.
Know Your Customer (KYC)
Financial services companies struggle to meet the ever-increasing scale and rate of regulatory change. According to a 2017 Thomson Reuters survey, some major financial institutions spend up to $500 million a year on KYC and customer due diligence. Customer onboarding time keeps increasing: banks take an average of 24 days to complete it. Processes for KYC compliance are costly and time consuming, while non-compliance may result in extraordinary fines.
By having a single integrated platform based on a distributed shared ledger, where KYC data is securely stored, financial services companies can increase the speed of on-boarding new clients and decrease costs to about 20%. The new technology will help eliminating duplication through shared services and will reduce risk thanks to a distributed and shared leger that guarantees an audit trail of all the corporate KYC processes. The customer experience will be enhanced as a result, while sharing KYC information across organizations will allow financial institutions to focus on other, more complicated tasks.
Thanks to blockchain traditional trading platforms will soon become faster and more secure. The risk of operational errors will be dramatically reduced, resulting in improved efficiency and investor trust as well as lower costs. No wonder London Stock Exchange and several others have been weighing the benefits of using blockchain technology for issuing stock and settling trades.
Blockchain will transform the way we own things, trade and invest, offering greater accessibility, transparency, and liquidity. Tokenization can expand the investor pool and make investing more accessible to many, while also eliminating middlemen and reducing transaction fees. Blockchain platforms would allow their users to create and trade new asset-backed tokens, as well as offering access to securities that are already being traded within the financial industry, making it easier and cheaper to invest.
Text by BMag team