The Potential Impact Of Blockchain On Financial Institutions: What To Expect

The Potential Impact Of Blockchain On Financial Institutions: What To Expect

Blockchain on financial institution

What could be the impact of Blockchain on financial institutions How will this people-powered, trustless, and decentralized technology affect the conventional financial institutions? Financial institutions like the JP Morgan chase bank, McKinsey Consulting, etc are all financing research ventures for the answer to the questions above. This article looks into the impact of blockchain in finance, blockchain in banking sector, blockchain technology in financial services market, etc.

Also read: Blockchan explained: the A-Z of all you need to know

The future of blockchain technologies in financial markets is still not completely clear, but very promising. With the way blockchain technology is moving within the mainstream, the impact of blockchain on financial institutions cannot be over emphasized. In this article, you will be guided on the possible impact of blockchin on financial institutions.

You need to know that there have been lots of white papers produced by startups in order to give a better understanding of this topic. Invented almost two decades ago, blockchain technology has shown it can impact different business areas. You should understand that the features of blockchain like immutability, decentralization, transparency, and data security have made it more appealing to businesses.

The banking and finance industry have been on the vanguard in finding the impact of blockchain on financial institutions. It will interest you to know that many companies and industries are researching the possible impact of blockchain on financial institutions. You need to know that millions of financial transactions occur across the globe on daily basis. This means that the global financial market is among the most popular sectors that could benefit from blockchain technology.

Blockchain in finance

You cannot study the potential impact of blockchain on financial institutions without considering blockchain in finance and blockchain in banking sector. The rise in the number of blockchain finance companies is evidence that blockchain is useful in financial institutions. The question going through your mind might be what is the impact of blockchain in the banking sector?

A claim by Harvard Business Review tells us that blockchain will do to banks same thing the internet did to media. Regarding financial institutions and organizations, blockchain technology has the potential to solve lots of problems. Just like every other technology used in financial transactions, blockchain is reliable, safe, and very secure. When it comes to the exchange of data and information, blockchain is very safe and secure.

Blockchain technology provides you with a transparent network infrastructure that comes with low operational cost due to decentralization. The above listed properties of blockchain makes it very promising and in high demand for the banking and finance industry. The involvement of too many mediators along the supply chain in financial industry makes it very expensive and highly insecure. Blockchain technology aims to eliminate these middlemen thereby making the transaction faster and at a lower cost. The launching of the JPM coin by JP Morgan chase bank is a sign that blockchain in banking sector have a promising future. Although some analysts saw the move as a waste of time, others were of the opinion that it is a great step towards adoption.

It will also interest you to know that great number of financial institutions are experimenting on the use of blockchain in finance. Although it is simply an experiment, it shows a highly positive trend in the industry. Another FinTech giant, Kviku is also looking for ways to improve its services using blockchain.

Potential Impact Of Blockchain On Financial Institutions

Over the years, banks have been heavily regulated and they also make use of highly complex infrastructure for very simple transactions. With the use of blockchain technology, financial institutions could create direct links between each other on a frictionless peer-to-peer basis while also avoiding correspondent banking. With such move, there will be an improved automation of online lending process. It will also widen financial access to borrowers all over the world.

Some of the ways that blockchain can impact financial institutions include the following:

Read: Enterprise blockchain: What it holds for the future

  • Know Your Customer (KYC)

Almost all banks and financial institutions spend huge sums of money in order to comply with Anti-money Laundering (AML) and Know Your Customer KYC norms in the industry. There is no way you can discuss the potential impact of blockchain on financial institutions without mentioning this. The aforementioned processes consume lots of time and money as it has to be carried out independently by all the banks.

With the invention of blockchain technology, the independent verification of a client by one bank or financial institution can be accessed by other banks. This ensures that the KYC process won’t have to be restarted again and thus saving money and time for the banks.

  • Provision of platform for cross-border transactions

Blockchain technology makes it possible for financial institutions to create direct links between each other thereby avoiding correspondent banking. Currently, banks have continued to make use of complex infrastructure for simple transactions. The complex infrastructure is as a result of the highly secured private databases. Blockchain technology provides an efficient and less complex infrastructure that helps keep track of the execution, clearing, and settlement of transactions.

The transaction will be completed without the involvement of any central database or management system. By using the infrastructure provided by blockchain, banks will be able to secure digital relationships between themselves in ways that were once not feasible.

  • Compliance as well as regulatory reporting

Regulators can take advantage of the transparent and accessible system of blockchain to collect records. The blockchain infrastructure can also be coded in a way that enables transactions that are in line with regulatory reporting. Take for instance; banks have an obligation to report any financial transaction that is above $10,000 to agencies like FinCEN. Blockchain infrastructure can help in achieving this goal with utmost ease.

  • Accounting and Auditing potential

Blockchain platform is a database with context and history of itself. This means that the platform is built from their own transaction history. It is a highly self-contained system of record. Such features make auditing and accounting very easy and transparent.

  • Transparency and fraud reduction

On yearly basis, more than 40 per cent of financial institutions and intermediaries are prone to heavy losses relating to financial and economic crimes. The cause of such losses can be traced back to centralized database system run by these financial institutions. Blockchain technology provides a distributed and non-corruptible database system thereby making it impossible to have a single point failure.

Every transaction performed on the blockchain platform is stored in a form of block with a cryptographic mechanism that makes it highly difficult to corrupt.

Examples Of the Application of Blockchain on Financial Institutions

In the early years of blockchain development, banks treated it with so much skepticism. Now, it will interest you to know that the tide has turned in favor of blockchain. The success in the adoption of blockchain by different industries has made the players in the financial sector to have a rethink. The potential positive impact of blockhain on financial institutions has made many banks to adopt the technology.

It will interest you to know that JP Morgan Chase, an American multinational investment bank has started a new division called Quorum division. This division is specifically for research on how to apply blockchain in the banking sector. The Quorum division is also saddled with the responsibility of identifying the impact of blockchain technology in financial services market.

The Goldman Sachs is also among the giant financial institutions that are actively involved in the research on potential impact of blockchain on financial institutions. In fact, this project has been termed as one of the most funded startups in the blockchain ecosystem. It will interest you to know that Goldman Sachs aims to become the leading financial institution in cryptocurrency adoption.

Conclusion…

This is just a tip of the iceberg when considering the potential impact of blockchain on financial institutions. This article geared to helping you see the potential ways that this disruptive technology is revolutionalizing the fintech industry. I want to believe that you have been greatly enlightened going through this piece.

You can contact Blockchaingap for your research, reviews, and consultations. 

 

 

 

 

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