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How the Financial Services Industry is Moving Toward Blockchain

Blockchain is a breakthrough in data storage and information transmission. It will fundamentally transform the existing operating models of finance and economy

Blockchain is a breakthrough in data storage and information transmission. It will fundamentally transform the existing operating models of finance and economy, which might lead to a new round of technological innovations and industrial transformation within the FinTech industry. Blockchain in financial services is still largely a technical innovation, but its applications and potential business models are expanding on an exponential curve.

Blockchain payment and financial services applications are bound to transform how the world acts and interacts. The introduction of blockchain technology is expected to change our lives dramatically. Blockchain technology provides the platform for creating decentralized banks free from intermediaries. It can provide cheaper and faster services by eliminating the need for third parties. And these will lead to more financial inclusion in emerging markets and increased transparency and security across all financial transactions on the blockchain.

The industry is moving rapidly into new market opportunities created by blockchain technology. The most notable developments include the adoption of blockchain technology in the financial sector, expansion of the use cases for digital identity, expansion of the use cases for cryptocurrencies, more detailed exploration of smart contracts, and contrarian risks regarding blockchain’s scalability.

Every day, the financial services business processes millions of transactions worth trillions of dollars, and security, transparency, and cost-efficiency are critical considerations. Over half of the world’s financial intermediaries are targeted by cybercrime each year. Because of its inherent capabilities in securing, transparent, and cost-effective transaction flow, blockchain technology has achieved great popularity. It’s a technology that began with bitcoin and other cryptocurrencies and has since spread to nearly every sector of the economy.

With complicated algorithms and encryptions, the transactions may be trusted, irreversible, and easily available to everyone in the system. Blockchain technology has been the biggest accelerator for financial services like the stock market, banking, asset management, and insurance.

The financial services industry process improvement and innovation are leading the charge on blockchain technologies. As a result of its nature, the FinTech industry is also expected to lead to a more fundamental transformation in the financial sector.

Simply put, blockchain is a system for recording online transactions in a way that is impenetrable, transparent, and decentralized. Blockchain, like the internet, does not have a centralized authority; instead, it is a distributed record of transactions that anybody on the network can access. It’s made up of a succession of data blocks, each of which records a patch of transactions. The blocks have purportedly been linked together and secured using cutting-edge cryptographic techniques.

Given the promise and peril of such a disruptive technology, many firms in the financial industry, from banks and insurers to audit and professional service firms, are investing in blockchain solutions.

How Blockchain is Disrupting the Financial Services Industry

Blockchain technology in banking and finance is still largely a technical innovation, but its applications are expanding on an exponential curve. Blockchain technology can transform existing business models in the financial services sector and bring power back to the customers, making transactions more transparent and automated. Most importantly, lower costs by eliminating intermediaries.

Make a payment, transfer money, and purchase goods and services

Financial challenges are embedded in the social fabric, and the financial services industry is at the epicenter of disruption. Blockchain technology can solve some of those challenges by bringing much-needed transparency, efficiency, and security to many types of transactions.

Financial Challenges

Blockchain Impact

Transfer of value in large and small increments without an intermediary will dramatically reduce cost and speed up the payment. It will also push the product development cycle to focus on products that support many micropayments, forcing the industry to focus on customer experience and make transfers more traceable, transparent, verifiable, and secure than ever before.

Authenticating Identity and Value

Verifying a user’s identity for financial transactions is complex and points to inefficiencies and vulnerabilities. Current identity verification methods do not include a high level of security or encryption, and many use outdated methods that expose personal information or require using third parties. Blockchain technology will improve the current process by enabling an individual to store only viewable information in an encrypted ledger by the user and their private key.

Blockchain Encrypted Ledger

Blockchain Impact

Blockchain technology in the banking industry creates a verifiable and strong identity, with cryptographically assured privacy and smart contracts that contain embedded business logic. This will enable a safe, secure, and efficient way to access your money and make transactions.

Claims Processing

Claims processing is costly and paper-intensive for all parties involved, and there is limited transparency across the industry. Some steps in the process are manual and involve multiple intermediaries, increasing the chances of errors and fraud.

Secure Blockchain Technology

Blockchain Impact

Blockchain technology provides complete control, transparency, and traceability for each claim and could lead to automatic pay-outs. This technology can reduce claims processing costs and increase the security and transparency of all transactions.

KYC Compliance

Regulatory compliance is a complex process, and regulators must prove that the financial institutions follow all rules and guidelines.

Blockchain Regulatory Compliance

Blockchain Impact

Provides a distributed and unalterable record of transactions unencumbered by the institution. This will allow the bank to satisfy regulatory compliance and increase trust between institutions and their customers.

Lending

Despite the low-interest rates and high cost of setting up new lending facilities, many people still cannot access credit. Blockchain technology will provide financial institutions with a means of making lending more efficient and transparent by allowing the automation of processes, thus increasing the speed and efficiency of capital formation.

Blockchain Technology in Banking

Blockchain Impact

Debt can be issued, traded, and settled on the blockchain, thus increasing the efficiency with a systemic risk improvement while reducing friction. These can be applied in peer-to-peer lending, where a borrower and lender can create and execute a loan agreement in real-time.

Conclusion

In conclusion, blockchain technology is the most significant financial innovation in history. While the financial services industry has been resistant to change, blockchain technology can disrupt industries and lead to fundamental changes. The blockchain will heavily influence the future of financial markets. Technology is leading the charge on innovation in financial services and will likely bring about a more fundamental transformation in the financial sector.

With these, financial services industries are moving towards blockchain adoption. It is an innovation that has revolutionized the global financial system and made it more secure and efficient. Implementing blockchain technology comes with its difficulties. The biggest challenge for many is where to start with blockchain adoption. Major issues in finance and banking are related to the problems of risk, security, and efficiency. Blockchain technology can solve these problems, and a new era of financial services will emerge.

With our clients, we always begin with defining the business strategy and specific use cases before selecting and implementing any blockchain technology. We have taken our time to research and analyze the use cases, the challenges, and what blockchain technology offers. We are confident that we have thought of every challenge a client will face when adopting blockchain technology. The application of blockchain helps solve these challenges and greatly benefits all types of businesses.

At MicroAgility, our blockchain consultants have vast experience in adopting cutting-edge technologies in clients’ businesses and know how to implement blockchain technology based on your needs and requirements for different domains, ensuring security, confidentiality, and scalability. Our blockchain consulting services can help you choose the most suitable solution for your business and bring it to the next level with seamless implementation. Contact us today to schedule a consultation with one of our blockchain consultants.

Posted by
Sajid Khan

Sajid Khan is the President at MicroAgility and has over three decades of management and consulting experience. He leads the efforts in many projects including operational improvements, cost reduction, and managing growth. Sajid strives to help others succeed and to create opportunities that are sustainable and uplifting for humanity — always guided by the virtues of hard work, quality, and kindness

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