Blockchain is the future of technology and serves as a great niche to almost all industries, particularly the financial industry. There is no doubt that blockchain is going to be the trendsetter of financial services in the emerging market. Yet, to know how successful it can be implemented, we bring to you a few important applications of blockchain in the financial sector, through this blog.
A recent report released by Markets and Markets states that the market size of the blockchain is likely to grow to USD 39.7 billion by 2025, whereas it is USD3.0 billion currently. In a span of just 5 years (2020–2025), the prediction is impressive with a compound annual growth rate (CAGR) of 67.3%.
The primary motive behind this article is to create awareness about the powerful blockchain technology, and how effectively it can boost the financial sector. We’ve all seen how blockchain technology has impacted the trading industry and the Bitcoin system platform in the UK. Now we dig deeper to look at more unique ways of how blockchain transforms financial services by improving customer experience overall.
#1: Asset Management
We can still see banks or financial institutions following the traditional method of managing their assets. The traditional way of managing assets can be sluggish, incommodious, physical effort, and may involve risk when you try to reconcile and match your credits and debts. For example, let us consider loans. Loans are handled by several departments for different reasons and checks.
For example, intermediaries, clearing departments, settlement teams, custodians, and broker-dealers may maintain the same record of a loan transaction that leads to the high inefficiency of making errors at some point. Blockchain technology plays a vital role by simplifying and streamlining the entire process. It automates the trade lifecycle and provides a common database for all departments to access the same data without any confusion.
The insurance sector encounters several challenges such as identifying fraudulent claims, separating fragmented data sources from active ones, manually handled processes, and a single user bundled with multiple policies or processing any policy by checking loopholes and legal conditions. These factors influence customers highly and lead to dissatisfaction with service.
Blockchain introduces smart contracts for creating policies and ensures transparency, full control, and tracking of each claim. This will again benefit customers with an auto pay-out facility that reduces the risk of following up manually for renewals. Blockchain makes the risk modeling of the financial sector very strong and provides security and safety from the existing silos.
#3: Supply chain
Blockchain’s smart contracts can be effectively applied to the digital transformation of the supply chain and trade finance. The general procedure of the supply chain involves certain activities to be carried out by banks because banks act as a third-party service provider here. Every time banks must issue products such as Letters of Credits, which on the other hand increases the cost paid to the middlemen. With the implementation of Blockchain technology, smart contracts are executed by default that generates the titles to goods and money. This avoids the need for providing LOC.
#4: International payments
The traditional way of making international payments is painful, and you can never predict the success rate. Since the entire process functions manually, it is not possible to identify the scams if money-laundering is involved. Moreover, it is a slow process with a high transfer fee and easily can throw errors.
But blockchain technology is a one-stop solution for all your payment issues. Neither you nor your customers need to wait for longer days to make a transfer. With blockchain, you can transfer any time within 24 hours to anywhere, and the fund clearance happens the next day.
Know your customer (KYC) is mandatory from customers for any financial service. Your local regulator may ask you for submission and update of all documents for all financial services to customers from your bank. It is bound to complying and reporting the number of requirements to the local authority. Doing the KYC norms manually is quite time-taking and you cannot confirm at a stretch if it has been done properly.
To handle such conditions, blockchain technology uses the digital signage software that allows the transfer of documents to and fro seamlessly between banks and other agencies.
Everyone wants to adopt blockchain technology, but the problem is many of them do not know where and how to start. Blockchain technology is an agile approach to the existing challenges faced by the financial sector. But you must understand that being agile means you should be able to adapt to changes easily. This can happen if you set your business strategy by leveraging technologies at your convenience.