Blockchain technology is driving innovation and transformation across industries. Its potential uses are enormous and many industries are fast catching on, including the financial services industry.
Find out in this article how technology can potentially revolutionise the operation of the financial services industry.
What is Blockchain technology?
Blockchain technology is a public, decentralised, and shared ledger used to record transactions across different computers in a network while guaranteeing the security of the transaction.
Blockchain is touted to be the next internet and is the underlying technology for digital assets and cryptocurrencies.
Benefits of Blockchain
Blockchain technology is finding increased use across industries because of the following inherent features:
Distribution: Multiple copies of every transaction completed on the network exist. Members of the network receive a notification every time a new block is added.
Decentralization: Information on the network is not controlled by a single entity. Rather, everyone has access to the same information.
Immutability: Transactions cannot be easily altered or erased because the data is maintained across different computers in the network.
How Blockchain Can Improve Finance
Blockchain technology has the potential to revolutionise financial services. According to a report by Jupiter Research, using blockchain will help banks reduce costs on cross-border payments by more than 11%. Asides from cost, it also improves the efficiency of financial services in the following ways:
Speed: With blockchain technology enabling hundreds of transactions per second, financial institutions can efficiently enjoy fast and limitless transactions, even when processing international and cross-border payments
Security: By using cryptographic algorithms to process and record transactions, Blockchain technology can guarantee more secure payment processing.
Increase transparency: Since transactions are recorded on a shared public ledger, Blockchain can make financial services, exposing fraud and reducing risks for financial institutions.
Automation: The smart contracts functionality of blockchains can help financial service institutions like insurance companies verify claims, speeding up their processes and freeing time for other activities.
Data storage: Blockchain technology can allow the seamless exchange of customer data between financial service institutions, allowing institutions to meet the KYC requirements of regulators with less hassle and time-wasting.
Challenges Limiting Blockchain Adoption in Financial Services
While deploying blockchain in financial services has benefits, it has thus far met with opposition, and this has limited its adoption. Some of those challenges are listed below;
Interoperability: Many blockchain networks are not interoperable so they cannot communicate with one another.
Regulation: Regulators have been unable to keep up with the pace at which the technology is evolving, leaving room for concern by individuals.
Cost of implementation: The cost of developing and running on the blockchain is still expensive as blockchain developers are in short supply.
What the Future Holds
Despite the immediate challenges of blockchain technology, it is obvious that this is a technology for the future. As more and more financial institutions realise their potential and deploy it, there are bound to be many more enterprise-grade solutions that will improve financial services much more.