What is Blockchain Technology?
At its most basic level, blockchain is a block of digital pieces of information that are linked by chains and stored in a public database.
All blocks in the chain contain various transactions, and each time a new transaction happens on the blockchain, a record of that transaction is added to every participant’s ledger.
This means that if one block was changed, it would be immediately apparent across the decentralized database managed by multiple participants, also known as Distributed Ledger Technology or DLT.
Blockchain attracts attention from the public as an underlying technology for bitcoin and other types of cryptocurrencies since it is seen as a new foundation for transactions in this rapidly evolving world.
In fact, blockchain technology can be applied to various industries, such as healthcare, banking, agriculture, e-commerce, education, mining, transport and logistics, and more. While blockchain may not be a cure-all solution, there are numerous problems for which this technology is the ideal solution.
Digital currencies and their underlying blockchain technology are being touted as the next big thing after the creation of the internet because of its potential to transform well at a lower cost and ability to eliminate back control from intermediaries. So how do these technological advancements benefit the end-users and the industry players?
Benefits of Blockchain in Financial Services
In this fast-paced and modern generation, it is vital for the financial services sector to try out new technologies and innovate to improve their product and service offerings.
As consumers demand a seamless experience when handling their funds, financial service companies must work to provide this for them or risk losing out. In this section, we have listed the most prevalent benefits of blockchain in financial services.
Due to the immutable single database, blockchain can increase financial security by reducing manual manipulation. Therefore, when applied to the financial services industry, blockchain can increase the security and validity of the financial transactions and eliminate the risk for cyber hacks and attacks.
In fact, all transactions are required to undergo consensus protocols and require validation entry, which removes the risk of fraud or duplicate entry.
Increased Financial Transparency
Transparency can greatly increase by using blockchain technology and smart contracts as the whole monetary flow is recorded on-chain and can be audited by any party.
Blockchain is supposed to be a transparency machine in which anyone can join the network and view all information, which adds a degree of accountability and prevent data manipulation.
Furthermore, several privacy-minded solutions have been developed to reduce security threats, including confidential transactions, enigma secret contracts, zero-knowledge proof technology, and privacy-focused coins like Monero, ZCash, Dash, etc.
Today, to alleviate the costly and time-consuming trade finance transactions, financial institutions have been experimenting with blockchain to create smart contracts to harness the benefits of blockchain.
With the utilization of blockchain technology, financial institutions can now eliminate mediators and provide faster services to customers as compared to other traditional methods. The best part is that these transactions can be done in minutes or even seconds, which will save a significant amount of time and money for both of the parties involved.
Faster International Remittances
With blockchain technology, cross-border transfers wouldn’t take up to five working days before they are completed, since the technology offers somewhere between an instant to next-day international remittances.
Moreover, these financial services powered by blockchain are significantly cheaper than transactions through traditional banking systems, with an average fee of 7%.
Customers can also use blockchain money transfers using smartphones to avoid the cumbersome process of visiting a money transfer institution, standing in line, and paying expensive fees for international remittances.
Better Capital Optimization
One of the main features of blockchain is its ability to function without the need for a trusted intermediary and makes peer-to-peer transactions possible.
As a result, this will significantly reduce operational costs for financial services institutions, especially when various institutions share the total cost of that blockchain.
Another notable benefit of blockchain is its ability to simplify the current complex workflow as the operation can be automated, which in turn, reduces overhead costs and the need for manual work.
Banks and financial institutions benefit from blockchain by allowing them to easily find errors in a timelier manner and fix these errors before they can cause a problem for their customers and the institution.
In fact, studies have shown that blockchain can potentially reduce errors by up to 95% due to the elimination of out of sync ledgers and reconciliations, increase efficiency by 40% and improve customer satisfaction by 25%.
Key Statistics of Blockchain in Financial Services
The popularity of blockchain has skyrocketed over the years and it has taken the business world by storm. According to the study conducted by MarketWatch, blockchain represents a next-generation shift from the present technology and has the potential to transform the financial service industry by opening up new world opportunities.
The report also states that the banking and financial services sector have invested $2.3 billion for blockchain technology in 2018, and will more likely increase to $17.47 billion by the end of 2025. Various companies all around the globe are rushing to take advantage of the perceived benefits of this technological advancement and are seeking ways to implement their own private versions of blockchain and cryptocurrency.
Another comprehensive study conducted by Juniper Research shows that the blockchain asset tracking revenues will grow by 139% from 2019 to 2023.
Cutting-edge innovations like blockchain have changed the entire industry by ushering new ways of doing business. Driven by financial technology or fintech investments, blockchain has already seen exponentially a fast-paced adoption in some industries and is expected to generate a significant amount of revenue in the coming years.
There are also myriads of benefits associated with blockchain technology in financial services that provide better service as well as offer more security to customers. If properly executed, blockchain can provide positive and significant results for a company and its end-users.