The Impact of Blockchain Technology on Financial Services

Blockchain technology is one of the leading innovations in the financial industry and promises to reduce fraud, enable fast and secure transactions and trade, and ultimately help manage risks within the interconnected global financial system.

The financial services industry witnesses millions of transactions worth trillions of dollars every day, where security, transparency and cost-effectiveness are a high priority. 45% of financial intermediaries such as payment networks, exchanges and money transfer services are exposed to cybercrime each year. Blockchain technology has gained tremendous acceptance due to its unique strengths to deal with secure, transparent and cost-effective transaction flow. It is technology that started with Bitcoin and other cryptocurrencies and spread to almost every industry. It is a protocol or way of recording transactions using complex algorithms and ciphers that make transactions reliable, irreversible and easily accessible to anyone in the system. Blockchain technology has been the biggest accelerator of the transformation of financial services such as stock market, banking, wealth management and insurance.

Blockchain is technology that creates a secure, tamper-proof and easily accessible transaction ledger on the Internet. Like the Internet, the blockchain has no central authority, it is a common record of transactions distributed over a wasteful network of users. It consists of a series of data blocks, each recording a transaction patch. The blocks are allegedly chained together and locked with advanced cryptography.

Faster Settlement on Exchanges

Major exchanges are using the blockchain to allow nearly instant stock placements, reducing transaction time and operational cost. exploring its potential. It automates compliance through smart contracts with a higher level of security and transparency. NASDAQ uses blockchain technology to issue and share private securities, while the London Stock Exchange is exploring blockchain opportunities with cross-industry groupings to change the way securities are traded in Europe. Other major exchanges are exploring the potential of blockchain.

Wealth Management

With global trade and commerce growing every day, the wealth management industry is among the fastest growing and is expected to grow by US$150 trillion by 2025. Today, the asset management and supply chain network is largely focused on a centralized digital environment. Existing centralized data management solutions create a network of distributed ledger systems. Blockchain technology takes advantage of complex and time-consuming processes. The distributed ledger concept enables direct trade and settlements across borders, helping to reduce cost, increase data accuracy and reduce delays in processes. It makes you vulnerable to errors, fraud, and misinterpretation when exchanging assets between parties.

Efficient Payments

Blockchain can increase payment transparency, reducing efficiency, trust and security as well as cost for financial services firms and users. In the past, payments from one bank to another bank took about a week, and were instantly transferred with the help of blockchain. The use of digital currencies and distributed ledger technologies make payment faster, cheaper and more convenient. Central banks began experimenting with whether renewed payments could include distributed ledgers. Blockchain saves a significant amount of time and money for all parties involved. It also eliminated the need for middle office and back office staff, as payments are made instantly. There are hurdles that the Bank of Canada’s Jasper project has identified persistent challenges with certainty of solution and operational risk. Singapore’s monetary authority, Project UBIN, has also identified the hurdles but hopes to resolve them in the second ongoing phase. A distributed ledger may be the best way to provide faster and cheaper payments.

Improved Compliance Processes

KYC is a great service for financial institutions around the world as financial institutions are responsible for complying with and reporting on various requirements from their local regulators. It is a very important requirement. It can become increasingly time-consuming, labor-intensive and error-prone. Blockchain services such as KYC chain help financial firms streamline KYC processes. It provides banks with real-time and efficient KYC updates, reducing duplication of work and increasing trust. Blockchain technology automates customer identification by providing a single source of digital identity and other information that enables seamless exchange of documents between banks and other sources. It results in automatic account creation, reducing cost while maintaining the confidentiality of legally required data.

Fair and Fraud-Free Claims Management in Insurance

The insurance industry is making steady progress in leveraging blockchain technology. It empowers the insurance industry by automating claims sorting and processing through smart contracts. Opportunities such as cross-industry data sharing, easy access to customer history, and centralized customer authentication improve the claims resolution process and make it fraud-free. For example, in manual compensation payment, communication takes place between various parties such as customer, broker, insurer and bank. These communications include time-consuming and inefficient cross-checking, re-validation and more. Blockchain connects these parties through a shared and secure network and collaborates in ways that reduce inefficiencies and streamline the entire process. Blockchain is a shared ledger technology where everyone in the network, such as brokers, insurers, bankers, and customers, can see the status and history of transactions. It helps businesses work together more efficiently. LenderBot is a blockchain-enabled solution for microinsurance, an example of how the insurance industry is reaping the benefits of blockchain technology.