Blockchain with its exponential growth over the years is starting to disrupt the financial sector. The merge of blockchain technology and the financial services industry together can create a space of innovation, security, and decentralization.
Blockchain technology or DLT is a database system recording and processing transactions via distributed computers with no centralized entity to verify them. The anonymous Bitcoin creator, Satoshi Nakamoto’s developed the world-renowned cryptocurrency as an answer to the financial crisis of 2008. The underpinned technology behind Bitcoin is blockchain. While cryptocurrencies continue to struggle to gain regulatory approval. Financial Institutions and major banks’ interest in blockchain technology in contradiction is paving towards rapid momentum.
The recent news of JPMorgan creating the JPM coin shows the disruptive effects of the technology towards major financial players. JPM coin is a digital token that allows instant transfer of payments between institutional accounts. In the course of time, numerous industries together have come up with incorporating the sheer benefits of the innovation.
Blockchain’s Disruption In The Financial Services
Financial Institutions are looking on to embrace digital technologies. Digitization of value be it in the context of existing financial assets, removal of intermediaries with lower transaction costs, minimal risk and the benefit of liquidity. Companies strive for the best in matters of finance and transactions. Reliability is a big factor when it comes to receivables and payables. Relying on third parties such as back office, insurance, and compliance regulation can create inefficiencies and even blunder in the whole process. Using a peer-to-peer network can help in effective monitoring while facilitating transactions in real-time. This creates an optimal level of performance in matters of financial operations.
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Potential usage of blockchain in business domains. Image Source: Infosys
Companies and businesses are exploring ways on how the technology could be incorporated for maximum efficiency and risk elimination. Recordkeeping and other back end functions can be refined through the application of blockchain technology.
Financial Industry is witnessing a multitude of scams with fraudsters bypassing the highest of security and manipulating into their customers into making payments. Blockchain plays a critical role in fraud reduction. The technology facilitates the use of smart contracts to support the storage of any type of digital information. Moreover, the implementation of blockchain in digital payments could prove to be highly transformative in the payment space.
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Blockchain ecosystem of financial services. Image Source: Infosys
Market size of global blockchain technology is expected to be worth over $25 Billion by 2025. According to International Data Corporation, worldwide Investment in blockchain solutions is expected to reach $11.7 billion by the year 2022. Research firm Greenwich Associates reveals the financial services sector has plummeted on a huge amount of money into blockchain totaling up to $1.7bn a year.
Meanwhile, a Deloitte survey of over 1,000 senior executives reveals half of the respondents expect their organizations to bring blockchain into production within the next year, while over 30% stated that they are already operating on blockchain. Recent survey shows, banks are implementing blockchain several times faster than it was initially expected; 65 percent of banks are going to have blockchain-backed projects in production in three years’ time.
USE CASES
UAE Exchange. The UAE is one step forward again, with its major financial entity becoming part of RippleNet, an enterprise blockchain network of over 100 members. The spokesperson of UAE Exchange stated that their decision to join Ripple’s platform was based on the urgent necessity to improve the cost and speed efficiency of cross-border payments.
Barclays. The banking giant from the UK was the first to trial Corda, a new blockchain platform, developed by R3. According to the statement, released by Barclays, distributed ledger technology will help the bank to reach digital maturity; smart contracts templates will be the center of their attention.
Royal Bank of Canada. The blockchain-based system, implemented by RBC, is aimed to store records of credit scores that will allow users to understand how they are calculated. Increased transparency and immutability are the main objectives of this project.
State Bank of India. SBI has become the founder of Bankchain, a consortium of almost 30 banks cooperating towards the common goal of exploring the full potential of blockchain tech for the banking sector. By 2030, SBI is planning to put all the core transaction-related processes on a blockchain.
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Financial institution’s interest in blockchain. Image Source: Infosys
Three major Japanese banks, Mizuho, Sumitomo Mitsui, and Mitsubishi UFJ Financial, also joined their efforts in order to create a cloud-based DLT platform for money transfers between individuals that can be used by each of these banks.
Conclusion
Although still debatable whether blockchain is just a passing fad or here to stay. The technology no doubt is gathering momentum at a tremendous pace. Blockchain technology is gradually paving the way in the finance industry while reimagining how data and processes are handled. Decentralization, transparency, and immutability can redefine many aspects of the financial world. The intersection of blockchain technology with finance and innovation gives a new dimension to digital assets in the financial services industry.
Data Sources: International Data Corporation | Greenwich Associates | Deloitte | Infosys | Naseba