Blockchain is no longer a buzzword. It’s real and tangible. We have moved past stages of conversations around the technology as statistics reveal that over 300mn people have used or have had access to blockchain.
For a version of the internet that is envisioned on Web 3.0 and Metaverse, the deployment of equally powerful technologies like blockchain becomes critical.
This is specifically true with respect to the world of finance, where trust, security, and sophistication are key. The integration of a technology like blockchain can help the banking sector adapt and function seamlessly, offering newer and airtight experiences to customers.
Interestingly, reports reveal that by deploying blockchain, financial companies can save up to $12bn per year.
This transformation is already evident as we are fast moving towards FinTech (where finance meets technology). As conversations on blockchain gain more momentum and this technology is deployed on a massive scale across borders, let’s look at the value propositions it offers to enterprises.
Introduction
Blockchain holds phenomenal potential in rewriting conventions in the world of finance. The implementation of such niche infrastructure allows for newer modus operandi in banks and institutions, delivering newer experiences to customers. Let’s look at some of the most compelling ways blockchain is impacting fintech.
Reduced Infrastructure Costs
- Expenses in setting up brick and mortar branches
- Setting up of ATMs
- Costs incurred in deploying the tech stack required to make banks digitally operational including physical hardware and software
- Spends in implementing adequate cybersecurity initiatives to ensure safeguarding of customer data, money, and money’s worth
How?
Streamlined Transactions
There is no concept of a middleman in the blockchain ecosystem. Since it’s a peer to peer environment, the need for complex infrastructure to validate transactions from diverse banking institutions can be removed.
Self-executing Smart Contracts
A major chunk of human dependency with respect to mundane paperwork can be eliminated with the implementation of blockchain powered smart contracts. These models are capable of automating tasks associated with financial processes, further minimizing OpEx.
Reduced Reconciliation Errors
Expenses always don’t equate with money. They are also incurred as time. Conventional banking institutions incur as much as 40% of the expenses in reconciliation processes.This percentage can shoot up in disconnected and siloed banking operations.
Since blockchain is decentralized and distributed, every single transaction is recorded and is verifiable. This eases off banks from the burden of spending manual hours in reconciliations.
Enhanced Security
Digital banking has unlocked newer avenues and platforms for users to avail and access services. From opening an account to sending and receiving money, transactions are instant and digital. As ways to bank increase, vulnerabilities to exploit increase as well.
Cyber attacks are higher than ever before as all it takes is one loophole in security, application code or straightforward human negligence to extort money or data from customers and banks.
Some of the most prominent breaches include
- Ransomware attacks
- Malware
- DoS
- Phishing and more
However, that is totally not the case with blockchain. Cryptography lies at the heart of blockchain technology, making it secure and tamper-proof by default. Since middle-people are eliminated and individual transactions are recorded, data is technically immutable and immune to fraudulent activities.
Resilience to cyber attacks is one of the core standouts of blockchain, which is devoid of a single point of failure. Fortification in such aspects makes blockchain innately secure and trustable.
Inclusive & Perpetual Banking
Setting up conventional banking institutions involves a rigid process comprising complex paperwork, compliances, regulations, and mandates. Due to such constraints, there are chances that banking services may not be viable in certain remote areas.
Besides, banking is centralized and institutionalized. This makes there are geographical barriers in place restricting transaction enablement. When an individual travels from one country to another, systems, protocols, and processes change, limiting convenience to customers because of the lack of operations of users’ home banks.
Blockchain resolves such concerns through their decentralized applications. With DeFi and cryptocurrencies, blockchain enables perpetual banking facilities to customers. Furthermore, since transactions are peer to peer, additional expenses incurred in global transactions in the form of service charges can also be avoided.
Blockchain makes banking inclusive, exclusive, and perpetual all at the same time.
New Wave of Fundraising Opportunities
Blockchain simplifies fundraising strategies such as crowdfunding initiatives. Conventional fundraising methods involve intermediaries to raise and manage funds. However, with blockchain, the process is seamless, fast, and more transparent.
Since it’s decentralized, it opens up a pool of investors from around the world. It is also platform-independent, increasing avenues for reach and visibility of projects. When it comes to crowdfunding,
blockchain introduces a whole new wave of mediums such as:
- Security token offerings
- Initial coin offerings
- Initial exchange offerings and more
Blockchain also strengthens accountability as transactions are publicly available, further ensuring compliance to mandates.
Blockchain (R)Evolution is Happening Right Now
Consistent refinement and optimization of blockchain use cases are happening right now. Possibilities on what can be achieved through blockchain in the world of finance are being pushed.
While these are the advantages, tech enthusiasts are also doing incredible research on the costs and challenges associated with operating blockchain-driven solutions.
Expenses are involved in setting up such solutions and there are environmental costs as well. These are fixable constraints.
What’s crucial is the potential blockchain showcases in revolutionizing conventional banking. As banking institutions battle cybersecurity issues, operational expenses, and perpetual risks, blockchain ultimately takes care of most of their concerns seamlessly.
From here, it would be interesting to observe the road ahead and how regulations and policies are strategized and implemented across countries to enable blockchain-powered banking.
What do you think? Will one world one payment solution ever be a reality?
