How the blockchain’s ability can build trust and improve the financial ecosystem?

Over the last few years, with the evolution and advancements of digital technology, the financial services industry has seen an impetus change in its service delivery. Many financial institutions have made a significant investment in a wide range of tools and applications to meet evolving customer expectations and drive secure financial processes. From AI-powered chatbots to big data analytics and RPA, the financial ecosystem has seen a major transformation. In this context, blockchain is one such technology that is garnering a lot of attention from all the corners.

The technology lays the foundation of cryptocurrencies and has supported the much-hyped Bitcoin ecosystem. Now, blockchain is started expanding its capabilities across the financial services sector, facilitating values by removing intermediaries’ failures, delays, collateral costs, lowering credit risks, faster implementation of transactions, improved transparency in operations, and more. To automate the recording and implementation of transactions, blockchain leverages smart contracts, a self-enforcing line of code managed by a P2P network of computers.

Decoding the Abilities of Blockchain

Blockchain has the potential to simplify payments in retail banking. This helps particularly in international payments that involve high fees and several days to complete the transaction. By using this technology, customers’ identities can also be authenticated, and once their personal data is verified, they can be issued private and public keys for the blockchain. The distributed ledger then functions as a decentralized and common mechanism to validate a customer's identity across banks.

With enhanced capabilities, central banks, commercial banks, stock exchanges and other financial services providers are increasingly exploring the potentials of blockchain these days. In the stock market, as transaction time and operational costs are a top concern, major stock exchanges are exploring blockchain’s ability to enable immediate settlements and automate compliance through smart contracts, with greater levels of security and transparency. In commercial banking, this tech has delivered significant opportunities, with different uses that can bring major changes across entire financial services, including cross border payments, trade finance, syndicated lending, digital identity verification, smart contracts, among others.

Blockchain technology can automate trust and transparency among all parties using it, as the ledger is distributed among all transaction participants, so it exists at the same time in multiple places. This makes it enormously complex to maneuver entries or tamper with the data without the other parties noticing.

Earlier, the banking industry was composed of centralized institutions that are operating on central networks, and plagued with various substantial challenges, such as privacy concerns, heavy regulation, high costs and fees for customers. Limited users control over their own account and their own funds were also posed a set of new challenges. These conventional financial processes do not only make banking processes more expensive, time-consuming and inefficient, but also vulnerable to fraud and cybercrime. This is why almost every financial service provider is unfolding the capabilities of blockchain to ensure data integrity and efficient delivery of banking services.