KYC, account opening, and loan processing in the digital era are still very traditional in many ways as many companies rely on paperwork. This process is time-consuming and inefficient if you want to move into the next era of banking and finance. However, one technology, which can accelerate this major shift is blockchain. This technology has all the nuts and bolts to revolutionize the banking & financial services industry.
So, let’s explore the major 5 ways Blockchain can bring about a change in the industry.
Verified Financial Transactions for Fraud Mitigation
Blockchain technology is the real game changer when it comes to offering a high level of security for any financial transaction. Every piece of information stored in the blockchain is highly encrypted and cannot be tampered with by anyone. This, in turn, helps to reduce the need for intermediaries in financial transactions.
According to a report by the Reserve Bank of India, various banks across India reported frauds worth ₹19,485 crore between April and September 2022. Although this value is lower compared to ₹36,316 during the same period in 2021, it is a significant sum and adversely impacts economic growth. That is why every financial transaction must be verified using robust blockchain platforms. One such platform is DOCCHAIN.IO, which can be used to securely store and verify various baking and financial documents such as NOCs, hypothecation, loan sanction letters, exchange receipts, loan disbursal closure letters, deposit receipts, and account statements.
Faster Financial Transactions
In a conventional financial setup, many overheads are involved in a transaction. This increases the time and costs required for each transaction. Transaction costs impact the net revenue of any business. Hence, it becomes very important to lower the time and costs required for financial transactions.
Blockchain facilitates faster and more affordable financial transactions. A typical transaction that requires several days through a conventional financial channel takes only a few seconds or minutes through blockchain. The transaction cost is also much lower than that incurred in a conventional financial setup. Both domestic and international financial transactions can be executed through Blockchain.
High Level of Transparency in Transactions
Both small-scale and large-scale business-to-business (B2B) companies face challenges regarding speed, transparency, and costs associated with payments. The severity of these challenges is even higher for cross-border payments. While small-scale companies do not have a robust infrastructure, big corporations struggle to maintain the high load of transactions.
Blockchain technology has the potential to address these challenges of B2B companies. The technology can create an irrevocable digital ledger of transactions with a high level of transparency. Blockchain offers a public ledger that can be accessed by anyone to check all the transactions. Each and every stakeholder in the transaction can easily view and verify the transaction details leaving no room for error or misunderstanding.
Another advantage of transparency in blockchain technology is the elimination of checks and balances that often consume important resources and manpower. Blockchain fully automates the transparency process in each transaction, which can help reduce the cost of financial reporting significantly. It also optimizes and simplifies data, which makes it easier for companies to comply with financial regulations.
Self-executable Smart Contracts
The use of physical documents in the banking & financial services industry often leads to delays in transactions. It also increases the chances of errors and fraud. On the other hand, smart contracts that are powered by blockchain platforms help automate transactions and tokenize assets.
Smart contracts have the ability to execute the terms and conditions of a contract when certain conditions are met. The use of these contracts for insurance policies can help lower costs and facilitate faster payouts as the contracts automate the claims process and eliminate the need for intermediaries. Smart contracts can also be utilized to automate other financial services including loan distribution and closure. These contracts aid in reducing the onboarding processes which traditionally involve multi-step verification and significant documentation.
Bye-bye Intermediaries
As we have seen above, traditional financial transactions are full of intermediaries that increase the cost of transactions and decrease the time required to complete the same. Blockchain technology completely removes the need for intermediaries due to its decentralized nature. Every stakeholder involved in a transaction can see and verify its details. This helps in increasing the transparency in financial services and lowering the risk of fraud.
You as an individual can also benefit from the use of blockchain technology for your financial transactions. The decentralized nature and the absence of intermediaries allow you to fully control your assets and finances. With no bank or any other financial institution in full control of your transactions, you can save greatly on transaction costs and the time required to process the transactions.
Conclusion
Blockchain technology is here to revolutionize the banking & financial services sector. Banks and other financial institutions across the globe are already using the technology to leverage a high level of security and transparency. According to a 2018 survey by Deloitte, more than 95% of respondents were interested in investing in blockchain or distributed ledger technology in order to benefit from faster and cheaper transactions. Central banks in various countries are addressing complex cost and operational challenges with the use of blockchain.
Some banks have even implemented blockchain technology in their day-to-day operations as financial transactions with conventional methods involve intermediaries, which increases operational expenses. Blockchain technology accelerates financial transactions by eliminating the need for intermediaries such as banks or payment processing companies. Its tamper-proof design boosts the security of each transaction and improves transparency. Additionally, smart contracts and decentralization help reduce the time and cost involved in these transactions. These benefits are prompting banks and financial service providers to increasingly adopt blockchain technology.