Advancements in technology have disrupted financial institutions in unexpected and revolutionary ways. Blockchain, otherwise known as a distributed ledger technology, is one of the leading technologies impacting the sector, disrupting traditional methods of financial services. It is transforming everything from payment transactions to funding in the private markets. But what is the extent of its potential in transforming the financial industry? Here are five ways blockchain will transform the financial services game:
Blockchain in payments: Public blockchains offer secure, efficient, and lower cost transactions by cutting down the need for a trusted third party to verify transactions. Crypto payment platforms have not only reduced the time taken for transactions, but have also led to the reduction of transfer fees. Blockchain companies are also enabling businesses to accept cryptocurrencies as payment. The past few years have seen an increase in transaction volumes for cryptocurrencies like Bitcoin and Ether.
Cross-border payments: Today, on an average, cross-border transfers take three days. Unlike the traditional SWIFT network (Society for Worldwide Interbank Financial Communication) which is time consuming and not cost effective, public blockchain as a “decentralized ledger” can disrupt this system. By integrating directly with a bank’s existing databases and ledgers, it provides banks with a faster, two-way communication protocol that permits real-time messaging and settlement.
Lending: Blockchain enabled lending ensures trust and creates a more secure way of processing syndicate loans for a larger pool of customers, making the loan process cheaper, efficient, and faster. Blockchain opens up the possibility of P2P (Peer to Peer) loans. Although still in its infancy, there are interesting ongoing blockchain projects in the lending space. And while most of these projects are focused on creating liquidity through loans around people’s existing crypto assets, they’re also setting the foundations for the infrastructure that will enable bigger disruption in loans via blockchain.
Trade Finance: Although a pivotal part of the global financial system, trade finance operates on antiquated, manual, and written documentation. By enabling companies to securely and digitally prove country of origin, product, transaction details or any other important documentation, blockchain technology can streamline and simplify the complex world of trade finance.
Fund Raising with Initial Coin Offering (ICO): The use of cryptocurrencies to finance digital innovations is already an established trend in the blockchain and investment community. In an ICO, entrepreneurs raise money by selling tokens or coins allowing them to raise funds without a traditional investor. As in stocks, clients can trade in tokens but with higher speed and greater access, at all hours from all parts of the world.