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Blockchain. Technology treasure trove for banking and finance

By CIOReview | Tuesday, April 28, 2020

A decade ago, the glitter of Bitcoin and other cryptocurrencies drew public attention away from a much bigger treasure-trove-- blockchain, the technology underlying how cryptocurrencies work. But business leaders, especially those in banking and finance, were quick to recognize the potential of a distributed digital ledger that is decentralized, publicly accessible, transparent and secure.

Today, blockchain technology permeates virtually every economic sector -- healthcare, energy, transportation, agriculture, media, government, you name it. Initiatives like the IBM Blockchain Platform exemplify how vigorously companies are pursuing the market opportunity. Applications range from the mundane task of tracking romaine lettuce delivery to the complex testing of data reliability for the U.S. Center for Disease Control.

The financial sector occupies a prominent space in the market. The technology’s intrinsic qualities – decentralization, transparency, security, reliability, reduced cost, accuracy, simplicity, traceability and immutability – are upending traditional banking.

Transforming global banking      

Benefits for the $134 trillion global banking industry are transformative. Payments recorded on a decentralized ledger are faster, cheaper and safer. Blockchain clearance and settlement systems can reduce operational costs and help reach the goal of real-time transactions among financial institutions. Loans and credit processing can be carried out safer and less costly, possibly even lowering interest rates.

Many believe that Blockchain is reshaping the transaction environment. New processes are making transactions more efficient, allowing an inflow of liquid cash via so-called “smart contracts,” and prompting cross-border payments in real time. A smart contract is a set of rules stored on a blockchain and can be executed quickly and paper-free.

The international blockchain trading platform, we. trade, brings together bank rivals to offer cross-border trade financing to small- and medium- size businesses, while also increasing the operating efficiency of the participating banks.

Guy Halford-Thompson, CEO of the BTL Group, writes in International Banker that yet another promising area is compliance with government banking regulations. He explains that banks can use blockchain to run smart contracts at the network level to achieve self-regulating records accuracy.

Accelerating investment trades and settlements

In the investment arena, blockchain can expedite trade clearance and settlement. A blockchain system eliminates the need for the time-consuming, mistake-prone process of verifying asset ownership and then verifying and recording the trade itself. With share ownership residing on a blockchain, any change can be validated instantly. The technology can be employed for all asset classes – stocks, bonds, derivatives, commodities and real estate. The wide applicability explains why NASDAQ has embraced blockchain technology as its way forward in serving capital markets.  

Even the insurance industry stands to gain. Blockchain News reports that using smart contracts can slash by10-fold the time it takes to issue policies and process claims.

For all of its promise, however, blockchain technology poses risks. Industry experts, for example, point out that smart contracts are prone to human encoding errors. And, decentralization removes the perceived assurance of an accountable intermediary overseeing transactions. But the same experts insist such issues are manageable.

Blockchain’s future transformative and bright

A bright future lies ahead for this transformative technology appears to be a sure bet. The banking and finance sector is both a progenitor and a beneficiary of the blockchain revolution. It promises to permanently change the way the financial industry does business for many decades to come.

See Also: Top Fintech Solution Companies