How Is Blockchain Affecting the Finance Industry?

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The financial industry plays a critical role in the global economy. Financial intermediaries such as banks, NBFCs, stock exchanges, lending institutions, insurance companies, etc., experience slow operational procedures, frauds, and cybercrime every year.

That is where Blockchain technology for finance can deliver safe, transparent, automated contracts, robust security, and a more affordable flow of transactions.

Blockchain is a decentralized distributed ledger of all the transactions across multiple computers within a network. It records transactions utilizing complex algorithms and encryptions that make the transactions irreversible, tamper-proof, and easily accessible to everyone.

Before we understand how Blockchain affects the finance industry, let’s look at the benefits of Blockchain technology in financial services.

Let’s dive in.

Benefits of Blockchain Technology in the Finance Industry

Blockchain Technology and its Impact on the Healthcare Industry
Illustration by Aga Koniuszek via Dribbble

1. Transfer Money Quickly

People send billions of dollars to foreign countries every year, and the process is costly, burdensome, and unsecured. Many banks and financial institutions still take days to verify, approve, and process certain financial transactions.

Furthermore, transferring money across borders gives numerous complications and challenges for both users and financial institutions.

By hiring a Blockchain development company, financial institutions can implement the features of Blockchain into their systems and accelerate the process of international payments. Users can also use Blockchain technology to perform electronic transfers hassle-free.

As per the report published by Jupiter Research, Blockchain development services will permit banks to save on cross-border settlement transactions up to $27 billion by the end of 2030, decreasing prices by more than 11%.

2. Robust Security

  • Security of Data: The decentralized nature of Blockchain prevents cyber-attacks. The data is distributed across numerous nodes, making it impossible for hackers to obtain essential data.
  • Increase Scalability: It supports interoperability between private and public chains, delivering every company to expand their global reach and incredible stability.
  • Build Trust: Blockchain’s transparent and immutable ledger makes it effortless for various stakeholders in a business network to cooperate, handle data, finalize agreements, and build trust.
  • High-Performance: Its private and hybrid networks are engineered to sustain hundreds of transactions per second in network any network.
  • Fewer Frauds: Online scams are a concern for every financial institution; however, Blockchain-based payments are secured, eliminating cyber-related frauds.

3. Effective Asset Management

With global commerce and trade evolution, the asset management sector is among the fastest-growing ones. The supply chain network of asset management companies predominantly focuses on a centralized digital network that delivers real-time visibility of assets within the systems.

However, the distributed ledger of Blockchain technology permits direct trading and settlements across borders. It also decreases expenses, boosts data accuracy, and streamlines process delays.

4. Fast Settlements in Stock Market

Prominent stock market exchanges are envisioning the prospect of Blockchain. Smart contracts can automate compliance with the highest level of safety and transparency.

So, it gives them the option to settle the stocks-related transactions in real-time, thereby reducing transaction time and operating cost.

For example, NASDAQ- an American multinational financial services corporation uses Blockchain technology to issue and share private securities.

Additionally, various prominent stock exchanges are also thinking about the potential of Blockchain. A Blockchain development company can create a secure decentralized finance application to facilitate the settlement in the stock market.

5. Financial Inclusion

Blockchain also encourages financial inclusion as it helps startups compete with major financial institutions. Many people are searching for an option to eliminate limitations like lengthy processes, slow processing, and higher banking fees.

Blockchain developers can implement certain features and mechanisms to use digital identifications like biometrics and iris scans to remove the annoyance of traditional banking.

If you are an enterprise and want to create a DeFi app for your institution, you can read the complete DeFi app development guide for a better understanding.

Use Cases of Blockchain in the Financial Industry

  1. Banking And Lending
  2. Payments And Remittances
  3. Capital Market
  4. Asset Management
  5. Insurance Sector
Digital Banking
Illustration by Shakuro Graphics via Dribbble

How Is Blockchain Affecting Banking And Lending?

Primary banking services consist of transactions, payments, loans, mortgages, etc. Almost all these services rely on slow and traditional procedures.

For instance, if an individual wants to process a mortgage loan, they have to go through a lengthy documentation process of information verification, credit score check, loan processing, and finally, allocation of funds.

Blockchain in banking can facilitate lending services, decrease counterparty risk, and reduce issuance and settlement timeframe.

It takes 3 to 4 weeks for the individual to get a mortgage sanctioned and 2 to 3 months for SMEs to avail of a business loan. Blockchain enables the following processes:

  • The authentication of financial documents and KYC/AML data can be done in real-time.
  • The process of underwriting and disbursement of funds can be done automatically.
  • Principal and interest payments can be allocated seamlessly.
  • Banks and lending institutions can predict credit scores immediately, collect user activity and streamline the data across a network.

How Is Blockchain Affecting Worldwide Payments And Remittances?

Various intermediaries execute worldwide payments and remittances that take 2 to 7 days. Blockchain can facilitate payment and remittance procedures by decreasing settlement times and reducing costs. The technology authorizes:

  1. Blockchain provides fast and secured domestic retail payments. Digitization of KYC/AML data and transaction history and minimizing risks of scams.
  2. Quick securities settlements.
  3. Fast and secure cross-border payments.
  4. It facilitates the automation of regulatory compliance and auditing.

How Is Blockchain Affecting The Capital Market?

The capital market is an essential part of the financial system where buyers and sellers trade financial securities such as bonds, stocks, etc.

Raising funds can be extremely difficult if you are a startup, business owner, or big company. Businesses encounter strict regulations; it can be challenging to raise funds. Blockchain delivers numerous benefits for issuing, clearing, and trading.

  • They reduce settlement times.
  • Digitizing of procedures and workflows,
  • Blockchain reduces risks of scams, human error, and counterparty risk.

How Is Blockchain Affecting Asset Management Companies?

Real estate funds management companies, venture capital firms, and private equity firms are encountering backlash to enhance liability risk management, adopt better dynamic decision-making systems, and manage the increasing intricacy of regulations.

Blockchain can seamlessly streamline the assets and stakeholder management process. It helps:

  1. Launch and administration of funds automatically using smart contracts.
  2. Transfer asset management agency automatically.
  3. Blockchain technology presents customized and robust built-in privacy settings for secured transactions.
  4. The digitization of portfolios for broader market reach and liquidity can be achieved by using Blockchain.
  5. Voting and other shareholder rights and obligations are embedded into an app for a flawless user experience.

How Is Blockchain Affecting The Insurance Sector?

Property, life, health, fire, third party, and burglary and theft-related insurance claims are prone to forgery. Claim assessments can take a lot of time. Blockchain can securely facilitate data verification, claims to process, and disbursement, decreasing processing time. It enables:

  • Automation of claims process with the use of smart contracts.
  • The disbursement of insurance pay-outs can be automized easily.

Financial Institutions That Encourage The Use Of Blockchain

The acceptance of Blockchain technology in finance is growing immensely. There are numerous financial enterprises, from startups and SMEs to large organizations, that are investing in Blockchain or promoting the use of Blockchains. For example:

1. Visa

Let’s see how Visa has utilized Blockchain technology.

Visa is one of the largest payment processors globally. It was the first prominent financial organization to adopt Blockchain technology.

    It launched Visa B2B connect in 2017, which uses Blockchain for international B2B payments.
    Visa has also collaborated with cryptocurrency exchanges to launch cryptocurrency debit and credit cards.
    In March 2021, it became the first financial organization to settle transactions with cryptocurrencies.

2. Barclays

Barclays is a multinational bank that has comprehensively analyzed the Blockchain in finance. The bank has experimented with smart contracts to trade derivatives like futures and options. Its objective is to leverage Blockchain technology for quicker and more affordable transactions.

3. American Express

American Express is both a payment network and a financial organization delivering services like credit cards, banking, and loans. It has worked with a company named- Hyperledger to create its in-house Blockchain Boxed, an online grocery, household products, and health supplies delivery platform.

Wrapping Up

We are in the early phase of Blockchain development and its usage in the financial industry. Implementation of Blockchain technology comes with its complications. The finance sector encounters a lot of stringent rules and regulations.

Despite the difficulties, numerous financial enterprises have begun using it. There are multiple ways in which Blockchain technology improves the global financial service industry by providing robust security, authenticating financial documents, quick securities settlements, securing cross-border payments, reducing risks of scams, etc.

It is evident that the industry comprehends the potential benefits of Blockchain, and it will be a growing portion of financial services moving ahead. If you are a financial institution that desires to enhance your services, you can take the assistance of a reliable Blockchain development service provider.

About the Author!

Tom Hardy has 10+ years of experience as a software developer in SparxIT Blockchain development company. He often writes blogs and journals to share his expertise in app development processes.

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