Cryptocurrencies and Blockchain Technology are paving the way for digital transformations in the current world. Moreover, the global financial economy is already transformed into higher levels. This is with the implementation of Blockchain Technology in them. It is emerging in its full operational deployments and disruptions of fundamental processes. This is particularly related to the buying & selling of goods.
Additionally, the financial services industry contributes around 20% of the global GDP it seems. As the global financial system deals with a plethora of data every day, it is important to make them secured.
These financial sectors have a lot of intermediaries to process the operations. This includes Stock Exchanges, Payment processors, Money transfer services, etc. Thus, Blockchain could be a feasible solution to get rid of the major problems involved here.
Why Blockchain in Financial Sector can be beneficial?
Here are the four major reasons why Blockchain can be adopted than other popular technologies in the financial industry:
- Payment and data transfers facilitated by central authority are still the same. It has been more than a decade. Moreover, international transfers would take more than four days. With this, there are risks associated with credit/debit cards, exchange rates, etc.
In addition to this, industry too will involve a high amount of transaction fees. With Blockchain Technology, all these transfers can be made cheaper & faster which other technologies lack.
- Most of the industrial processes are delayed for an upgrade or other issues. This is to withstand security, hacks, higher volumes, etc.
Thus, by implementing Blockchain Technology, the process becomes more feasible as there is no centralized system involvement.
- There are greater chances that people would start making smaller transactions and payments. Hence for a smaller transaction, having a larger transaction fee won’t be better. With Blockchain, we can expect higher volumes and lower transaction fees.
- Blockchain Technology will also enable further disruptions of the traditional banks with fintech. Legacy problems, new participants, etc can utilize the blockchain platform to remain benefited.
In addition to this, Blockchain can be beneficial with the following factors:
Let me explain to you these main challenges and how blockchain can solve them in brief in the upcoming section.
Challenges in the Financial Sector & How Blockchain solves them efficiently:
- The Need for Decentralization
Most conventional financial systems are based on traditional centralization. As we have discussed earlier, it involves a great number of intermediaries to facilitate the transactions. This can, in turn, take additional time and cost for operation.
In addition to this issue, centralization lacks security. Security plays a couple of roles here. Initially, higher-level managers & individuals have access to employee and customer data. There are chances that they can use it for their beneficiary purpose.
While on the other hand, data are equally considered as gold. With centralized systems, customer’s sensitive data is held in central servers. This means that even a single breach of data can lead to the access of millions of records for the hackers.
With Blockchain in Financial Sector, one can eliminate the intermediaries by cutting down & saving time and money. The decentralized nature of Blockchain Technology will eliminate both these risks.
A consensus on a decentralized platform involves an agreement. This should be accepted by all the network participants. Hence, the decisions are not made by a single party but a set of individuals with the desired expertise.
Moreover, the data is not stored in a single server. They are spread out and encrypted throughout the network. So, there are no chances of fraudulent activities to take place. To hack this, hackers have to access the complete record of data which is impossible. Thus, Blockchain’s decentralized nature can secure the data efficiently.
- Cost-Savings for Border Payments
Because of its cost-saving benefits, the industry of finance is experiencing high-level changes. International Payments have become more expensive in recent years. These border payments include a lot of intermediaries to operate them. Hence, the cost involved will also be a bit higher.
By implementing Blockchain in Financial sectors, transactions can be completely streamlined leading to efficient yet instant transactions. It not only makes the cheaper but also safe & secure. This is done by handling the transactions over a reliable blockchain network and eliminating the intermediaries.
According to a recent report, it is stated that Blockchain technology could save up to $12 billion every year. Thus, Blockchain solutions can cut off additional and unwanted costs with international payments.
- Invoice Management & Billing
Managing a huge amount of data is always a daunting task not only in Finance but in every sector. Most of the financial companies have started adopting electronic invoicing. However, this equipment lacks the standards that are required to execute invoicing in the financial sector.
An Invoice usually contains a couple of steps:
- Verifying and tracking the information
- Forwarding & receiving the invoice information
Thus, while processing these two steps, it is important to store and maintain the data effectively & securely.
Financial companies can now upload their invoices with Blockchain through Smart Contracts. Invoice information such as Due date for payment, the total amount to be paid, the client’s personal details, are stored in the Blockchain Network.
Once the person pays his/her bill, the smart contracts update the data accordingly as “Paid”. Hence, Blockchain can help to make the decision if the client is safe to get started with trading.
- Know Your Customer (KYC)
Banks and financial firms have implemented strict concerns with the cost involved with KYC & AML. These tasks consume a lot of time and money for the banks for every single individual.
One of the popular mass & information media firms called Thomas Reuters unveiled that the overall expenditure of this process ranges from $60 million to $500 million every year. Moreover, financial institutions should now have to upload the KYC data to their central repository to perform these.
With the adoption of Blockchain in Finance, the individual verification of each client by a financial organization will be accessible for other banks as well. This means that the duplication can be completely eliminated with Blockchain Technology.
In the same way, all the updates of the client’s will be visible to all the financial institutions. This would result in the reduction of Admin efforts & costs from the financial department representatives.
- Trade Finance
Trade Finance is considered to be one of the most useful applications of Blockchain in Finance. All the involved parties go with a complex mode of transactions Financial companies are planning to use Blockchain to save the immutable funds of finance-related information such as profits earned, MoM, financial history, etc.
With Blockchain in the financial sector, all the participants in the transactions will have access to the information shared by exporters, importers, banks, etc. Once the particular conditions are met, smart contracts start executing. Hence respective parties can view all the actions performed.
One of the popular statistics states that an Israel-based startup along with Barclays has successfully executed a trade transaction that takes around 7 to 10 days. But with Blockchain Technology, it was a matter of just 4 hours. Thus, when comparing to the traditional architecture, the usage of blockchain can drastically reduce time as well as the cost.
The future of Blockchain in Financial Sector:
The future of blockchain in finance is drafted every single day to make it reach higher levels for an efficient process. Once these Financial firm starts adopting Blockchain Technology, they can taste real success in them.
More and more intermediaries start emerging, Financial sectors would realize the importance of Blockchain Technology. Added, Liquidity is one factor that is entirely rendered by Blockchain compared to other technologies. Undeniably, with these top-notch facts, we can expect the Blockchain development company worldwide to cater to all these resources.
To put it all together, we can notice a very bright future for Blockchain Technology in Financial Sector. This technology would effectively enable financial transactions a bit easier, cost-effective by enhancing liquidity.
Crypto Writer at a leading blockchain development company. I love to share my ideas & thoughts on Blockchain & Cryptocurrency in a simple & readable manner.