Blockchain and bitcoin have received widespread attention over the past few years. The blockchain is best suitable for environments where the information and a need for validation between two parties are common. Blockchain technology has the capability to provide a new mode of a distributed database within a broad range of applications in financial services. Therefore, the concept of blockchain has energized the financial services industry universally and has already brought a division. Below are some aspects of financial services which blockchain development can affect.
1. Capital Markets
- With the help of blockchain technology, it is possible to transfer value more efficiently, it can even shift the flow of capital.
- When the financial services industry can use blockchain, it can contribute to the excessive fee-charging intermediaries such as clearers or custodian banks.
- Essentially, blockchain can offer better capital optimization due to a compelling reduction in operational costs for financial institutions.
- Crowdfunding brought the greatest impact to date. The rise of ICOs offered a unique method of funding projects.
- There is likely to be a constant shift in how businesses can access capital and financial support, especially at the start-up level. Additionally, we may see new and unique financial instruments created. For example, in the U.S. there have been proposals to develop a Bitcoin ETF.
2. Payments And Clearance
- Financial markets can probably see a large shift in the processing of transactions.
- Digital currencies and blockchain make it possible to eliminate certain elements of doubt in transactions. This will change the role of intermediaries.
- As blockchain allows users to introduce a wide range of validation mechanisms it is likely to impact a variety of transactions including escrow arrangements and simple person-to-person wire transfers.
- Blockchain technology could significantly improve payment transparency, efficiency, trust, and security as well as reduce costs for all the financial services firms and users.
3. Improving Supply Chain Inefficiencies
- Each part of the supply chain is usually suspicious of the other which results in third-parties acting as a protector.
- Blockchain developers use smart contracts on the blockchain to change legal documents and eliminates the need for documents such as Letters of Credit.
- This can reduce the cost typically incurred by eliciting the middlemen.
- By reducing the number of components in the supply chain, it can increase the trust which can be further supported by the blockchain’s fundamentals of contract transparency.
4. Insurance Sector
- Insurance is a conclusive contract between two parties which includes number steps such as the filing of a claim, premium payments, settlement of claims, and investigation.
- The use of blockchain technology may change the way of insurance business runs by using the distributed ledger system and by changing the legal contracts with the smart contract.
- The other way it can help the insurance sector is in settling unclaimed files since the blockchain registry will help in connecting the dots.
5. Fraud Reduction
- In spite of being a new technology, blockchain’s potential to reduce the fraud in the financial sector is acquiring a lot of attention.
- Majority of the banking systems are liable to cyber attacks since they are built on a centralized database which makes it more vulnerable.
- While blockchain being a distributed ledger it has a timestamp on each block of individual transactions that holds a link to a previous block.
Blockchain technology has the potential to impact a large group of legislative regimes that may need to change to survive with the new technology. The use of this technology can give an opportunity to the financial institutions to win the confidence of customers since it can make the processes simplified and transparent. There are blockchain development companies like OpenXcell Technolabs that provides blockchain services like Smart contracts, Smart Contract auditing, Hyperledger, Exchanges and Wallets, which can be helpful in bringing a revolution in the financial service sector.