What if I tell you about a financial service, that is more trustful, secure, easily trackable and the one that provides instant authorize visibility into accounts?
Yeah, you read it right. This is possible with the buzzword, called ‘Blockchain’.
Blockchain
As the word suggests, a blockchain is a series of connected blocks having transaction-information in it. Each block contains the hash of own, hash of the previous block, and specific data allocated/stored to it. Together, blocks and data into it creates a distributed database.
But unlike traditional database's, users don’t have to be dependent on the centralized repository. Every connected user has their own clone of the database.
Problems with current financial services and what blockchain can offer for it
Banking
The current day banking systems are highly reliable on paper-work and outworn. The world is going digital and most of the transactions that are taking place are online/electric. Banks who are following the traditional way of saving transactions, might take more time to verify transactions that took place. There are chances of online fraud with these mutable ways of transaction and transfer. Transaction details are stored at different branches of the bank, which can be tedious if a random bank wants to fetch details of any account holder from any branch. Additionally, data manipulation and fake accounts, are also big challenge for banking sectors.
Blockchain Solution
Most of the third-party transactions in banking, consume more time. It could be from hours to days and sometimes weeks. With blockchain in this third-party transaction field, the transactions can be completed in a few seconds and instant changes can be seen in accounts. Blockchain offers a low cost value for every transaction, by removing the third-party concept, which is the most discussed advantage of blockchain. Blockchain can prevent unauthorized transaction-data modification, as it provides immutability. Banks spend about $500 million, over their KYC campaigns. Blockchain offers trust, transparency, and verifiable transaction with ease, so fake accounts can be tracked and removed efficiently.
Cross-border payments
In current cross-border payments, the payments go through multiple banks to reach the final destination. The received payment is not shown, until it reaches the destination. Though it provides security benefits, it makes transactions slow and costly.
Blockchain Solution
As blockchain provides distributed ledger type storage, the payment can be tracked by the sender. Both, the sender and receiver, can see the status of the payment. To make transactions faster, blockchain provides the ability to communicate and coordinate with banks, to make payment within seconds.
Insurance
Insurance companies face a number of challenges, like third party payment, fraudulent claims activities, managing information, and handling a huge amount of data. Additionally, digitalization of transactions has left users wondering about the format and flow of the transaction.
Blockchain Solution
Though it uses a public ledger, blockchain can prevent duplication of the transaction. Blockchain can help in verifying the authenticity of customers and eliminate issues related to hacking and stealing files, or data. A large amount of data can be handled by creating a, digital fingerprint using a date and time stamp, which provides both security and transparency. Blockchain in insurance sectors, stores data at every node, so insurance companies can see past data quickly and can fetch past transaction for reference. This will provide higher trust and loyalty between insurer and customer.
Trade finance
When we talk about trade first, the thing that comes to our mind is a tedious process of getting an import/export license for trading. The current trade sector is facing the issue of licensing, authorized sellers, margins, and other overhead charges.
Blockchain Solution
With blockchain in trade finance, all the details related to importers, exporters, and banks are shared/stored on one common ledger. Getting a license for trading is done by using the benefit of blockchain, same as KYC for banks like providing trust, transparency, and verifiable transaction. Logic related to actions of trades is stored in smart contracts. When certain conditions are met, the smart contract will automatically execute themselves and importer-exporter & banks will be able to see the actions performed.
Audit-silos
Auditing in the current system is very time consuming and ask for a huge amount of human resource. Additionally, a worker in auditing, only looks after their portion of the task given to them by a superior. A worker from any department can’t have knowledge, or access, to audit details of another.
Blockchain Solution
Blockchain in the audit sector, provides the ability to store data related to accounting and transactions into common ledger. A worker from every department can have authorization and access to it. Every department has its own clone of data. So, departmental dependency can be eliminated and global calculation, related to a company, can be done. Additionally, blockchain records all access actions. So, the worker that access the data can be tracked if any data security-related issue occur. The immutable nature of blockchain makes audit data unmodifiable and prevent it from editing.
With keeping all benefits of blockchain in mind, the financial companies have started to realize the potential of it and are welcoming the adoption of blockchain in their sector. With blockchain entering the current scenario of the banking sector, a lot of problems can be solved, by making systems more transparent, trustful, and secure.