Blockchain Technology in Banking and Financial Services

The blockchain, a form of distributed ledger technology, has the potential to transform the financial sector by bringing lower costs, faster execution of transactions, improved transparency, auditability of operations and other benefits.?– Wharton.

For those who are in the technology space have heard this many times – “all companies are technology companies now and companies that best use technology to create competitive advantage will win.” Today, organization are not only turning to technology but tracking the latest advancement, such as blockchain, AI, AR, VR etc., and how to integrate the same into their operations to ensure that they have the competitive edge.

Financial Institutions and Banking companies at the forefront of technology and are reimagining their futures using technologies like Bitcoin. In the Web 2.0 environment, Fintech companies were able to offer technology-based solutions at a faster rate and by reducing the number of intermediaries. With advent of Blockchain technology new innovative product and solutions are seeing the light of the day in the Banking and Finance industry, some of the use cases are listed below.

Many experts expect blockchain to become the foundation for new services and applications with completely different rules from those running on hierarchical and controlled databases. The use of blockchain today can be found thru:

• Smart Contracts.?Digital implementations of formal agreements
• Initial Coin Offerings.?Alternative methods for raising startup funding
• Asset-Backed Digital Tokens.?Tradable cryptocurrencies linked to other sources of value
• Nonfungible Tokens (NFTs).?Cryptocurrency tokens with their own inherent value
• Central Bank Digital Currencies (CBDCs).?Proposals for new nationally backed cryptocurrencies
• Decentralized Finance.?Blockchain-based banking and financial applications

Blockchain has the potential to cut costs, speed up transactions and promote greater financial inclusion by streamlining cross-border and remittance payments. These powerful innovations will transform payments infrastructure.

– Lucy Gazmararian, Crypto and FinTech Advisory, PwC Hong Kong.

In the last few years, the technology has matured for enterprise-grade use demonstrating the following features across industries.?

• Security: Its distributed consensus-based architecture eliminates single points of failure and reduces the need for data intermediaries such as transfer agents, messaging system operators and inefficient monopolistic utilities.
• Transparency: It employs mutualized standards, protocols, and shared processes, acting as a single shared source of truth for network participants.
• Trust and Immutability: It's transparent and immutable ledger makes it easy for different parties in a business network to collaborate, manage data, and reach agreements.
• Programmability: It supports the creation and execution of smart contracts—?tamper proof, deterministic software that automates business logic?–?creating increased trust and efficiency
• Privacy: It provides market-leading tools for granular data privacy across every layer of the software stack, allowing selective sharing of data in business networks. This dramatically improves transparency, trust and efficiency while maintaining privacy and confidentiality.
• High-Performance: It’s private and hybrid networks are engineered to sustain?hundreds of transactions per second and periodic surges in network activity
• Scalability: It supports interoperability between private and public chains, offering each enterprise solution the?global reach,?tremendous?resilience, and high integrity.

How the industry will shape up will be the key and evolve as the implementation of the technology increases. In some areas intermediaries will find their roles reduced due to automation through greater transparency and traceability. Blockchain will help reduce massive duplication of information and inefficiencies due to duplicate record-keeping by financial institutions and intermediaries that creates delays and conflicts in financial transactions. In other areas, intermediaries will find themselves well-placed as companies will need help to manage the shift to new standards as well as the greater complexity of open and traceable blockchain infrastructure.?