The impact of the COVID-19 pandemic on financial services made 2020 a year marked by an acceleration in digitization. The COVID-19 pandemic prompted financial services to shift to remote trading. Mobile banking transactions soared, and personal trading apps saw record volumes. In addition, call center staff kept customer support running by working from their homes; this enabled users to have an enhanced digital experience primarily due to on demand 24x7 support.
The financial services industry was able to weather the digital tsunami and carry on its operations. However, it is becoming clear that the winds are not temporary. As a result, financial institutions are now looking at their technical setup strategically and asking themselves if the tools they have used in the past are still the best ones for the future.
The next big thing is blockchain technology & the cryptocurrencies supported by it. New technologies are expected to make a big impact in the financial sector.
Although blockchain technology is still very young, it is widely considered a disruptive and game-changing invention that can transform the banking industry in the next few years.
As businesses increasingly depending on computer software and electronic data to conduct their daily operations, there are greater chances for security breaches and cybercrimes. Banking sector needs to take precautionary measures to reduce vulnerabilities that can lead to breaches. The good news is, blockchain technology could turn the traditional banking industry on its head by making banking services seamless, transparent, and more secure for customers. It's safe to say it is disrupting the finance industry.
As per a statistic published by the Static Research Department, the United States was the world's leading country for financial institutions investing in Blockchain companies. The United States recorded 52 investments in 2019 by financial institutions in Blockchain companies that operate in the financial service sector. Japan came in second place with six investments.
The banking industry is poised to be disrupted by blockchain technology in many ways. Here are some examples:
Technological innovations have enabled more people to work online and even receive payments for work-from-home jobs through smartphones or computers. The cost of sending payments will drop dramatically if banks adopt blockchain technology. This will eliminate third-party verification requirements during bank transfer transactions. It will also reduce the processing time for payments and eliminate the additional fees that banks charge. Bitcoin and Ethereum, for example, can be settled in 30 minutes to a few hours compared to bank transfers which can take up to three days.
Traditional banks use SWIFT to transfer money between two people. Intermediaries process the actual cash. Processing SWIFT payments take approximately 30 minutes, assuming both parties approve the transaction. The transaction will be rejected if the banks involved fail to reconcile their ledgers on time. Blockchain technology allows transactions to be cleared and settled instantly. Banks can track and keep decentralized ledgers in their public network instead of relying on custodial services and correspondent banks; this is possible because of blockchain technology. Goldman Sachs estimates that banks will save $6 billion annually in settlement fees and associated costs by adopting blockchain technology.
Before the transaction is completed, brokers, central security depositories, banks, and clearinghouses are responsible for purchasing and selling securities on the current financial markets. It is time-consuming, inaccurate, and vulnerable to deception because it goes through multiple parties during an exchange. Blockchain technology will help eliminate intermediaries and brokers present during the transfer of stocks and assets, saving $17 to $24 billion in processing costs. In addition, clients can quickly and easily transfer their assets and securities using blockchain technology. Large banks adopt blockchain technology like JP Morgan and CitiBank, custodians for assets worth more than $15 trillion.
Blockchain technology could revolutionize the financial and banking industries.
It may take several days for a payment to be processed using your bank account. International payments can be expensive because of the high transaction costs.
Blockchain finance is a new technology that allows central and commercial banks around the globe to use it to process payments and possibly issue their digital currency.
Cross-border payments made using traditional technologies are slower and more costly than a bank blockchain. Blockchains are global ledgers, which aren't constrained by borders. They don't require middlemen.
Whether the transaction involves a local or cross-border transaction, the slowest blockchains can complete it in 15 minutes while the fastest one can do it in seconds.
Blockchain-based trading transactions reduce information redundancy, which in turn increases performance. Because of this, minor transactions between traders can be done quickly outside of the Blockchain. Only the final transactions are recorded on the Blockchain. As a result, Blockchain can be used to trade stocks without the need for intermediaries.
Without a third party, rules can be easily implemented into smart contracts and deployed to ensure that no one cheats on anyone.
Even in the age of technology, many trade finance activities still require a lot of paperwork. To keep their ledger current, every middleman involved in international trade prepares all documents themselves. All parties involved in international trade can view and update a single ledger. Blockchain-based trade finance can streamline trading by eliminating bureaucracy and unnecessary paperwork.
Blockchain standardization would allow auditors to automatically validate financial accounts' most important data, reducing costs and saving time. In addition, it is easy to verify the integrity of electronic files using blockchain technology. One way is to create a hash string representing a file's digital fingerprint and then put that hash string onto a blockchain as a timestamp.
Blockchain-based credit reports reduce data verification difficulties and costs. Because the data is not stored in a central repository, it can be returned to the individuals. A bank must verify that you can repay the loan or mortgage as well as the terms of the credit card before you consent to it.
The evolution of Blockchain came early & it came as a significant improvement on the distributed ledger technology created to track bitcoin owners. This technology can replace traditional systems and provide a trusted method of managing identities.
Blockchain technology has enabled the creation of self-sovereign identity. Furthermore, this identity is more secure and inherently unalterable than traditional systems. This could change how we connect to online services and use our identities. Individuals could use their self-sovereign IDs to verify their identities, eliminating the need for passwords.
The solution, backed by blockchain innovation, gives individuals complete privacy and control over their personal data while sharing data on a trusted network and protecting identity transactions.