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Blockchain technology has a huge crowd around it that cherishes and admires its capabilities. Though, banking and finance industry experts share a great devotion to this technology.
By 2018, 90% of European and U.S financial and banking institutions have started blockchain technology adoption. The major reason behind it is that this technology is able to reduce the cost of banking infrastructure by 30%.
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Since the blockchain market is envisioned to grow up to $20 billion annual revenue by 2024, blockchain in banking & finance may significantly grow. In short, this technology will be a major transformation strategy to improve the banking & finance landscape in the future.
However, for many people, blockchain technology in banking and finance has become a matter of doubt and worry. Some people don’t know about the usage of this technology and wonder why this technology is growing popular in the banking and finance sector.
Are you wondering the same? Let’s find the answer.
Reasons Behind Growing Popularity Of Blockchain In Banking & Finance
There are various aspects that support the idea of blockchain technology implementation in the banking and finance industry. But some are very prominent in nature that has boosted the popularity of blockchain in banking and finance. Here take a look at them:
The Arrival Of Cryptocurrency
Cryptocurrencies are a major triggering factor behind the popularity of blockchain. Before the arrival of bitcoin, hardly anyone knew about this technology. But! When bitcoin grew popular, everyone got curious about the technology behind it, and people learned about blockchain technology and fell in love with it.
A Secured Infrastructure
Blockchain technology’s infrastructure is another reason for its popularity. Being a distributed ledger system, this technology is based on cryptography, where each block is connected in a chain through cryptography. This makes this system highly secured and immutable; it means any changes in actual information can be traced easily.
Cheaper & Independent Money Transfers
Another reason for the popularity of blockchain technology in financial services is the reduced cost of money transfer. Blockchain-based money transfers don’t require any third party authentication, which automatically bears less cost. Altogether, transfers made on these platforms are private that can not be traced or scrutinized.
So, these are the three major reasons behind the popularity of cryptocurrencies these days. However, the biggest dilemma arises when banks and financial institutions have to decide on usage and blockchain-based banking software development for their processes and infrastructure to improve customer experience.
Are you also wondering how blockchain in financial services can be used to improve customer experience and banking landscape? Let’s have a glimpse of some really exciting use cases of blockchain technology in the banking and finance sector.
Top 5 Whooping Use Cases Of Blockchain In Banking And Finance
1. Peer To Peer Money Transfer System
There are dissimilar P2P transfer systems available across the world that allows customers to transfer money through bank accounts or credit cards. However, these solutions include a number of limitations.
Major limitations addressed by experts in these systems are limitation of geographical region, third party authentication charges for offering transfer services, and insecure in terms of sensitive customer data.
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Using blockchain-enabled P2P transfer systems, all of these problems can be addressed and solved. Blockchain enables the use of a decentralized ledger system for peer-to-peer money transfers. Moreover, blockchain eliminates the issue of the geographical region; it means both sender and receiver shouldn’t be available in the same geographical region.
Above all, blockchain money transfer happens in real-time so the receiver can instantly access the money once it is transferred. In short, no wait time.
2. Digital Identity Check
Banks could not conduct financial transactions online without verifying user identity. Thus, the banking system includes a number of processes for identity checks that always annoy users.
These processes can be recognized as face-to-face verification, a form of authentication (login through OPT or password), authorization, and more. All of these steps are required to be performed due to security reasons.
The integration of blockchain technology in this process will benefit consumers and businesses with rapid verification processes. The major aspect behind its success is that the blockchain will allow reuse identity verification for other services in a highly secure manner.
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Zero-Knowledge Proof is the most significant and admired innovation in terms of this. ZKP is being tested by several financial organizations and corporations across several countries.
Succinctly, blockchain in digital identity check will empower users to choose the mode of verification process they want to perform and with whom they would like to share their identity. There will be no need to enter user identity again and again on the blockchain system.
Above all, you won’t need to perform registration separately for every single provider, as all providers will be operated by blockchain. In short, blockchain is highly secured to store all of this information.
3. Blockchain-Enabled Trading Platforms
When it comes to trade finance sectors, blockchain incorporates the potential to revolutionize this space. Do you know that still, a number of trading activities take place on paper such as letters of credit, bills, and invoices? Indeed, systems for online order management are available, but the process requires a lot of time to accomplish.
The blockchain-enabled trading system will digitize these processes and reduce the time consumed in a manual process, bureaucracy, and paperwork.
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Blockchain-based trade finance will streamline the trading process by getting rid of such time-consuming manual processes, paperwork, and bureaucracy. As there will be no need to maintain multiple copies of trading data with a blockchain system, and information will be available in secured digital documents.
This document will enable real-time updating and offer access to all users in the network. Moreover, errors in documents can be traced in the decentralized database, and all users will be integrated through a consensus.
4. BlockChain -Driven Fundraising
In the financial market, fundraising is the most complicated process. That always creates havoc for organizations and venture capital. It majorly indicates an extensive process including, deck collaboration by entrepreneurs, take part in wide length meetings with partners, hours-long negotiation on equity and valuation, and at last wish to exchange.
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Albeit, blockchain has reduced the hassle in this space by accelerating processes by infusing alternatives to fundraising. These alternative solutions include ETO (Equity Token Offerings), IEO (Initial Exchange Offerings), and STO (Security Token Offerings).
These include major offerings of blockchain-based banking software development services that entrepreneurs, SMEs, and global brands are striving to leverage. Albeit a dual diligence process needs to be passed by these processes to raise funds; Earlier, ICOs (Initial Coin Offerings) were more prominent, though now scammy and unreliable.
5. Blockchain In Hedge Funds
The hedge fund is a unique type of investment partnership that includes a group of investors and a fund manager, which involves limited partners. However, these people are usually traders instead of ordinary investors.
If I talk about hedge funds, then you must know that funding is mainly focused on increasing investor returns and reducing the chances of loss.
In the recent couple of years, cryptocurrencies have doubled the hedge fundraising. Actually, a decentralized hedge fund based on crypto caters an open platform for investors and fundraisers to participate with more transparency.
The reason to adopt this model is the sovereignty of fund managers over money; the decentralized system will enable fund managers to work within a single entity.
The Future Of Banking & Finance
Since blockchain has the potential to transform the banking and finance sector from its core, we will be experiencing drastic changes in finance-related processes in the future. Here are some expected changes that you may see in the future and relish:
– Increased number of online money transfers
– Cryptocurrency may replace currencies & fiat
– Enhances banking & financial processes
– Faster & real-time payments across the world
– Arrival Of Independent banking
These are some expected changes that we may experience in the future with the integration of blockchain technology in banking and finance. However, many chaos and challenges will also arise concurrently.
There are more than 39,000,000 blockchain wallets that are facilitating digital money transfer and saving. This number will rise in upcoming years as financial institutions, and small organizations are driven to leverage the potential of blockchain technology.
This technology is thriving as the most significant trend in the finance and banking sector, which is expected to bring great ease to consumers and financial institutions. So, won’t you like to use cryptocurrencies or a peer-to-peer system to send money to your cousin sitting abroad?
Blockchain is a powerful tech concept that will invigorate financial institutes and banks. It is an exclusive technology solution to adopt by organizations engaged in day to day money transfer and purchasing.
If you are involved in business processes where you have to deal with millions of money transfers, you must embrace blockchain app development for your customers’ convenience.