How is Blockchain Technology Changing the Financial Sector?
Blockchain’s use in BFSI is rapidly increasing. It was valued at around USD 0.25-0.30 billion in 2018. But with BFSI increasingly realizing its benefits, blockchain’s BFSI market size is slated to reach slightly above USD 2.50 billion in 2022.
Now, these growth statistics may appear organic. But blockchain’s BFSI market size, expected to reach about USD 22 billion, may entice many!
Security is blockchain’s foundation. From reduced frauds to better customer service, blockchain’s scope covers every essential aspect of the multi-faceted finance sector. And that’s one significant reason BFSI loves it.
But what factors make experts project such a massive growth for blockchain in BFSI? In other words, how is blockchain disrupting conventional banking and unlocking many exciting opportunities for everyone? Let’s examine some factors.
Blockchain Applications in the Finance Sector
From an accelerated settlement process to increased transactional transparency, these seven applications make blockchain’s transformations in BFSI evident.
- Accelerated Settlement Process
Blockchain can accelerate the current and otherwise slow and cumbersome settlement process. Blockchain optimizes financial settlements, which saves time and money for multiple parties involved. Transactions get settled in minutes or seconds. Hence, banks don’t have to manage middle and back-office supports.
These aspects also point to enhanced customer service. Thus, banks must consider exploring blockchain. But every bank may have its unique way of attempting blockchain-powered settlements. While some may explore the option within banks, others may confine it to settling department transactions.
- Enhanced Contractual Performance
The smart contracts of blockchain helps financial institutions enhance contractual performance that get auto-executed once the pre-set conditions are met. But smart contracts must be well-designed and integrated, abiding to applicable laws and regulatory compliances.
Blockchain technology can significantly benefit intricate financial transactions like customized smart contracts integrated with their distributed ledger platforms. Automatic settlement through smart contracts, controlled by a well-defined and incorruptible set of rules, can make the difference.
- Increased Compliance (KYC)
Compliance is a complex aspect to deal with. Banking and finance aren’t an exception. They are required to comply with various rules and regulations at the regional, state, and national levels.
KYC (Know Your Customer) is an essential compliance requirement within the banking and finance sector. But usually, the process is lengthy. Additionally, they lack automated customer identification technology and integration required to help teams perform their tasks efficiently.
Blockchain can help here. It can work as a single digital ID source, enabling the quick exchange of documents between banks and external parties. Accordingly, blockchain can facilitate automated account opening and simultaneously reduce cost, resources and ensure data privacy.
- Seamless International Money Transfers
Digital payment platforms have simplified money transfers. Within the boundaries of a country or across boundaries globally is the larger scope. Despite technological advancements, sending money internationally is still an arduous process. Additionally, its error-prone nature questions its safety and credibility!
There are billions of dollars transferred internationally each year. A well-designed, empathetic, and custom blockchain solution may allow users to make electronic transfers anywhere in the world securely from their mobiles.
Prominent players across the BFSI sector have adopted international payments powered by blockchain. It helps them save time and money. It also allows consumers to complete international electronic money transfers through their mobile seamlessly.
Thus, technology can eliminate the need to visit money transfer agents and save commission or transaction fees and a lot of time!
- Enhanced Capital Optimization
Blockchain makes peer-to-peer transactions possible, eliminating intermediaries like custodian banks or clearing agents. Thus, blockchain fosters better capital optimization, thus resulting in substantially reduced operational costs.
When banks share a blockchain, the cost of that shared blockchain and related ecosystem might be higher than the bank’s individual managing costs. But when blockchain is shared, the cost also gets shared within all the participating banks. Thus, together, banks can significantly reduce their operational cost.
- Increased Security
While using technology, with benefits come security concerns. The use of digital payment platforms is proliferating. But online payments are vulnerable to attacks. Often, they involve various intermediaries. The participation of various financial intermediaries can make information prone to interception and, thus, fraud.
But blockchain can make a difference here. Payments made on blockchain are quicker and more traceable than conventional payment methods. Blockchain can help fill this void in oversight with its cryptographic algorithms. It can increase security during the information exchange process between the various parties.
- Reduced Fraud Instances
Fraud is a massive business worldwide. In 2021, consumers reported losing approximately six billion dollars, up by about 69-71 percent over 2020.
Blockchain can enhance security and reduce fraud instances significantly, if not completely eliminate them. It is because blockchain creates an immutable record of transactions. It is end-to-end encrypted and thus arrests the possibilities of fraud, unauthorized activities, and trespassers.
Blockchain enables fraud detection due to full transparency and sharing information real-time with all participants.
Additionally, blockchain data is stored across a network of computers. So, it becomes almost impossible for a hacker to hack the data. The system proves much more helpful than its conventional counterparts, where data is stored on a single server.
The permissioned blockchain is an essential attribute in preventing fraud. It is only through invitation from the members of a permissioned blockchain that an individual can have the access to contribute.
Design Thinking-Powered Blockchain Solutions for BFSI
Need custom blockchain solutions for BFSI to resolve conventional and contemporary challenges? Qodequay Technologies’ unique and proven design thinking approach can make a difference. We empower BFSI organizations with custom and sustainable blockchain solutions.
Our design thinking approach involves a thoughtful and empathetic review of the requirement. While reviewing the client’s needs, we identify the pain points, define challenges and ideate various solutions to resolve the issue.
Our experts create rapid prototypes that examine the solution’s viability in real-time, thus increasing its likelihood of success. Furthermore, we test the solution to deliver a highly meaningful and value-driven solution for your needs.
At Qodequay, we specialize in managing public and private blockchain infrastructure with monitoring and preventative maintenance. Our highly scalable solutions continuously align themselves with your business growth.
Connect with us at firstname.lastname@example.org to know more.