Blockchain technology in banking and finance is transforming the dynamics of payment systems from tracking transaction history to the whole process of how money is being transferred. The question lies here can the traditional financial sector embrace the revolutionizing technology or be replaced by it?
Blockchain technology is already disrupting the currency market while the banking sector is starting to get the heat of it. The technology behind blockchain features trustlessness, borderless, privacy-focused and has the potential to replace centralized banking infrastructures.
According to a study by Harvard Business Review “Blockchain Will Do To Banks To What The Internet Did To Media”. The highly secured blockchain technology can be reliable specifically to one’s matters involving finances. Newer generation demands cheaper and faster payment systems with high data security. Blockchain enforces all of this through trustless agreements via smart contracts. The innovative approach can hence potentially disrupt not only the financial sector but various industries as a whole.
The core underlying nature behind the technology encompasses decentralization. Middlemen here is out of the picture thanks to the trustless parties coming together in an agreement through a highly secured database. Moreover, smart contracts in blockchain can process manual automation from compliance and claims processing to distributing the contents of a will. Blockchain within banks can entail a uniform ledger across multiple platforms under one ecosystem.
Bitcoin, the cryptocurrency created on the outline of blockchain technology was originally created in 2008 as an answer to the financial crisis of 2008. The popularity of cryptocurrencies as an alternative method of payment in the current market is a breakthrough in matters of value involved. Unlike a centralized bill regulated by banks and concerned authorities, cryptocurrencies are unregulated while validated only by the users involved in making the transactions. Though cryptocurrencies are accepted only by few entities in the current scenario, it has the potential to replace traditional currencies in the near future.
Why Is Blockchain Adoption In Banking Sector The Need Of The Hour?
Outdated methods of inefficient paperwork, the involvement of middlemen, centralized administration, inaccessibility of ledgers for the public, higher transaction fees, lengthy manual processes are some of the various inefficacies involved within the banking sector. Replacing the current system with something that can withhold security issues, scalability, frauds can help rough out the edges of the existing financial system.
Transactions processed through banks from one continent to another still go up to 5 days, with risks open to cyber-attacks while potentially interrupting transactions. Blockchain embedded into the system can help mitigate lengthier processing time, security concerns, lower operational costs and reductions in human blunder. Data recorded in a distributed ledger system that is unalterable and immutable with cryptographic protection can help mitigate various frauds involved.
Digitalization globally is picking up at a rapid pace and in the near future, it is bound to follow the same course. Financial services are no doubt too gearing up with the latest technologies prioritizing the highest of security. Adoption of blockchain technology in financial institutions can drive towards the next step in the evolution of the banking sector. Rapid digitalization in the world makes it imperative for banks to pace up and open their doors to innovation.
What Do The Experts Say?
90% of the European and American banks are already exploring on blockchain technology. According to Juniper’s research, the deployment of blockchain technology can save banks more than $27 billion annually by 2030. Another study by Accenture revealed that banks can potentially save more than $10 billion in annual cost savings, by implementing blockchain technology in banking infrastructure. The report further added that blockchain can reduce bank infrastructure costs by almost 30%. Data from the PwC report stated nearly 24% of financial executives are familiar with blockchain technology. Global Fintech Report 2017 highlights that by 2020 about 77% of Fintech is expected to adopt blockchain technology into their production system.
Major players are already investing heavily in research and tests on the innovative technology on how their business processes can be taken up to the next level. Banks such as JP Morgan Chase, Bank of America, and Goldman Sachs are actively involved in blockchain technology for their operational activity.
“As blockchain technology continues to redefine not only how the exchange sector operates, but the global financial economy as a whole, Nasdaq aims to be at the center of this watershed development.” Bob Greifeld, Chief Executive of NASDAQ
Speculations or Reality?
Any new technology created to date goes through hesitation and doubt regarding how can the system be completely trusted without creating any potential threats. No doubt the innovative feature of the technology is appealing, complete replacement of traditional banking prevalent for decades might create hesitation in the wider adoption for people sill used to the nature of centralized banking.
Moreover, the financial system in any country is dependent on the regulations of the respective governments in the said country. The underlying question lies whether the particular jurisdiction allows decentralized technologies to be adopted within their financial system.
In spite of the speculations, global major banks such as Santander Uk, HSBC, Deutsche Bank, JP Morgan Chase and Co, Goldman Sachs Inc, Unicredit Bank Italy, etc in the R3 Consortium has looked towards on strengthening their business while maximizing profits through lower operational costs involved within the system. Fintech has already started investing in training banks and financial systems to implement blockchain technology and as a whole revolutionize the system.
Conclusion
Is blockchain the answer to the existing gap between consumers, regulators, and financial institutions and bring them together to a common platform? Can the current infrastructure of traditional banks and finances sustain in the coming age to follow? The answer lies in the coming years wherein the technology is full-fledged within the sector. Since its infancy, blockchain created a ripple among different domains of industries and sectors due to its appealing nature of transparency and accountability. Although it has still a long way to go regarding complete adoption in the traditional financial sector, the technology no doubt is here to stay.
Data Sources: Law Technology Today | Juniper Research | Accenture | PwC Report