Due to its massive potential impact, Blockchain can cause massive changes to the current financial industry.
New evidence from IBM suggests that at least 14 percent of financial market institutions are planning to be involved in Blockchain production in 2018.
In this guide, you will discover 5 major trends that will significantly transform the global financial industry.
Let's get started…
1. Fraud reduction
The Blockchain has the potential to drastically reduce fraud despite the fact that it is a new player in the market.
2 of the main problems the banking sector is facing today are increasing fraud and cyber-attacks.
According to risk.net, fraud is one of the 10 most operation risks of 2018.
Since financial transactions require several steps and it is a time-consuming process where human interaction and third-party are involved, it provides a loophole for fraudsters.
Also, until now, most banking systems store all their information one centralized database, it makes them susceptible to cyber-attacks.
With Blockchain technology, data is stored in a distributed ledger with a timestamp for each block.
Though batches of an individual transaction are held by each block, each block can be linked to a previous block.
Thus, the probability of fraud and data theft is severely reduced.
The reason is that there are storage, encryption, and verification of every single bit of data for every transaction.
Thus, it is obvious that Blockchain is useful to financial institutions.
2. Smart contracts
These are widely regarded as having the biggest transformation on the financial industry.
There is less flexibility in the traditional financial contracts for the digital era.
The use of paper documents causes delay, thus, it is marred by errors and fraud.
These and most other problems being experienced in traditional financial contracts can be solved by smart contracts.
Apart from being a piece of code that can be deployed to the shared and replicated ledger, a smart contract has its own state, controls its own assets and can react favorably when external information arrives or assets are received.
It is impossible to make any modification to the rules of the contract, and any effort being made to modify them will be instantly obvious.
Hence, the financial system is more interoperable, flexible and is less risky.
3. Know your customer (KYC) and anti-money launder (AML) laws compliant procedures
To prevent money laundering and terrorism financing, regulating authorities keep a close eye on banking institutions and their clients.
According to a 2016 Thomas Reuters review, the costs and complexity of KYC are rising on a constant basis and this is affecting the finances of most businesses.
Most business firms spend an average of $60 million on compliance with KYC and customer due diligence (CDD).
But with bitcoin technology, one organization can verify a client and make their verification available to other organizations.
Hence, there would be no need to duplicate the KYC process unnecessarily.
Thus, administrative and operational costs will be reduced. Also, the efficiency of compliance processes will be increased which will lead to transparency for regulatory agencies.
4. Trading platforms
The Blockchain technology is capable of making trading platforms more secure and an efficient place for businesses.
There is on-going research by the stock exchanges to discover how the distributed ledger technology can be leveraged to ease traditional trade mechanisms.
For example, by using Blockchain solutions, Nasdaq and the Australian securities exchange are now able to modify payment transactions and reduce costs.
Also, trades are now cleared and settled with greater efficiency.
The use of Blockchain technology will eliminate any unnecessary intermediaries in payment processing - the number of intermediaries in the current payment systems is too much.
There are 2 main benefits of using the distributed ledger technology for payments;
· Banks can improve security and reduce costs.
· Payments can be processed between different banks with greater efficiency as well as between individuals and their financial institutions
The Blockchain technology can also be used for making payments in real time. Hence, there would be an increase in the speed at which domestic and cross-border payments take place.
For any financial company, the Blockchain can improve their methods of storing data.
These real-time, global, open-source and trusted platforms can reduce the cost of processing payments, create new products or services and find new markets that have revenue potentials.
By integrating Blockchain finance cybersecurity into banking solutions, the business process can become more reliable.
Hence, more customers can be attracted.