A few years back, in 2008, when blockchain technology first invented for decentralizing peer-to-peer transactions, no one had the idea that the technology will go so far and surpass all its limitations. Today, blockchain technology is driving transformation across all industries, including healthcare, banking, agriculture, real estate, politics, and security. The financial service industry is no more exception. Blockchain technology has emerged as one of the most groundbreaking applications with immense potential to metamorphose the operations of the financial sector in various ways.
So, here is the list of some specific ways of how blockchain technology is transforming the financial service sector.
While transactions can be completed within minutes or seconds, settlements take weeks. But, blockchain is going to change this. Blockchain technology will make settlements user-optimized — save enormous time and money for all parties involved. Moreover, the technology will eliminate intermediaries (middle office and back-office staff at banks) as transactions settle immediately.
The traditional trade process in asset management is slow, manual, cumbersome, and risky when reconciling and matching. With cross-border transactions and for non-standard investment products like loans, it is even more complex.
Blockchain technology, in this regard, simplifies and streamlines the entire process. It computerizes the trade lifecycle where every party in the transaction will have access to the same data related to trade. This ultimately leads to extensive infrastructural cost savings, effective data management and transparency, faster processing cycles, minimal reconciliation, and possible elimination of brokers and intermediaries.
Financial institutions can improve their contractual performance by implementing smart contracts. Smart contracts, in their simplest form, are contracts that can execute part of the functions of the contract itself.
When these smart contracts are placed on the blockchain or a distributed ledger, there is a strong element of permanence and immutability attached to them. This improves the contractual process with more efficiency, transparency, and security.
Complying and reporting on the number of requirements from local regulators are some of the important responsibilities performed by financial institutions all across the globe. To achieve this, they must execute the Know Your Customer (KYC) process. But, because of the lack of automated customer identification technology and integration, it's difficult for the team to efficiently manage the KYC process without consuming much time.
Blockchain technology, in this case, provides a digital single source of ID information allowing for the seamless exchange of documents between banks and external agencies. This will ultimately result in automated account opening, reduced resource and cost, while maintaining the privacy of data that is legally required.
Blockchain technology is still relatively new. But, the financial sector and many other industries are already harnessing its potential in their operations. By seeing its increasing demands, the technology is here to stay in the market; at least for the next 10-15 years. It is going to bring the next generation of the industrial revolution all across the globe.
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