It makes no difference whether it’s labeled a blockchain (or not) or a new version of a type of blockchain with different features. However, it’s essential that the financial industry is working hard to be ready for what’s coming next, which is the advent of blockchain in banking and finance. The use of blockchain finance is going to become one of the biggest growth hacks for fintech companies. The following is a list of 7 benefits of blockchain in banking and finance.
List of Benefits of Blockchain In Banking & Finance
1. System More Up to Date
The use of distributed ledger technology, or blockchain, in banking and financial services has numerous advantages.
The industry is cognizant of the redundant nature of legacy systems, data management, and storage procedures. Some organizations have stacks of these dating back 30-40 years. It’s hard to comprehend how difficult it must be to track data.
Because blockchain has improved many of the financial services industry’s outdated procedures, the industry has saved money, which is probably the most compelling reason for adopting Blockchain.
Banks can trade more efficiently, as well as faster and cheaper when they employ a distributed ledger.
2. Instant Settlements
Today, large-scale transfers can take up to a week. However, blockchain in banking allows for instantaneous transfers. Blockchain optimizes settlements, saving both parties time and money. Blockchain eliminates the need for vast numbers of middlemen and back-office labor at banks.
As a result, banks have a strong incentive to employ Blockchain to improve settlements. Some banks prefer to look within first, while others prefer to look externally. Time limitations are no longer a concern with blockchain-enabled payments and receipt creation.
3. Improve Capital Optimization
In addition to eliminating the requirement for a trusted middleman, Blockchain enables peer-to-peer transactions. The utilization of blockchain in banking and financial services might render fee-charging intermediaries such as custodian banks and clearers ineffectual.
As a result of considerable reductions in operating expenses for banks, blockchain in banking allows for better capital allocation and improved capitalization rates. It’s also possible that the total costs associated with a shared Blockchain and its surrounding ecosystem will be more than the individual costs of handling transactions at a single bank. All participating banks will split the costs, resulting in considerable cost savings. Even aside from this, blockchain is a technology many want to invest in. It could play a crucial role in a fintech firm’s advertising strategy. To know more about how to use this to your benefit, click here.
4. Reduced Counterparty Risks
Transactions that are settled very quickly reduce a large portion of the risk that the counterparty will not be able to satisfy its commitments. As it is, there is an ongoing debate regarding the efficiency and safety of using UPI versus using digital cards. Each party suffers enormous financial losses when a payment or transaction is completed where one party is unable to pay in full, or when the firm itself is attempting to impose an agenda or is attempting to mislead an investment.
As a result of the use of blockchain in banking and finance, investors may purchase and sell shares, estates, bonds, etc. instantaneously without technological problems or having to worry about the market rates altering. An efficient payment system is essential in today’s turbulent markets where anything may happen at a moment’s notice. You can find out more about how to make your fintech business secure here.
5. Improved Contractual Performance due to Smart Contracts
Banking and financial organizations can enhance contract performance by employing smart contracts, which execute automatically after certain pre-set conditions have been satisfied. There must be a legal basis for these smart contracts, as well as the ability to comply with any regulatory requirements, even across jurisdictions. To make smart contracts easier and more efficient to execute, blockchain firms work with financial institutions to customize smart contracts within their distributed ledger platform.
In addition, standard form contracts for B2B and P2P transactions decrease the liability of the financial institution because the bank/financial institution has minimal involvement in the entire transaction. Since smart contracts are controlled by an incorruptible set of business rules, Blockchain in banking is particularly useful for complicated financial asset transactions.
6. Increased Transparency
Blockchain banking would enable end-to-end security in transfers and generate receipts promptly. This would increase the security of the transaction, and also give a breakdown of transaction costs. Clients will automatically feel compelled to opt for blockchain over traditional payment systems. In many ways, blockchain may even rival the security features of UPI.
Increased transparency attained through instantaneous and immutable transactions would also mean that the bank’s or financial institution’s statement of accounts will be free of overhead charges. By cutting needless costs of paperwork, bureaucracy, etc., the banks and financial companies will be able to maintain the same revenue without having to allocate funds to ancillary costs of management and administration. Furthermore, if regulators have access to the blockchain, they may increase regulatory reporting and monitoring by central banks, thus making the entire process way more fool-proof.
A blockchain-based distributed ledger platform will enable the transaction between two entities while the banking and finance industry will do what it does best: safeguard the transaction taking place between two entities, whether it is B2B or P2B. This will provide the banking sector with a major boost.
7. Increased Financial Solutions in terms of Crisis
Using crypto or digital currencies or tokens in banking and finance opens up new financial alternatives in times of crisis.
After Bitfinex was hacked, tokens were used to compensate clients. Each token was $1 and was a promissory note. Doubters can sell their tokens at market value. In spite of this, almost half of the tokens were changed into equities, recouping customer losses.
Besides these two options, the company said it will buy the tokens back for $1 in the future. Bitfinex is currently fully operational. Without blockchain, all clients would have lost their money. Thanks to blockchain, the company was able to not only survive but also fully recover. This is one of the many ways blockchain has revolutionized the financial sector.
8. Reduced Error of Handling and Reconciliation
The immutability of data stored on the blockchain is a fundamental characteristic of blockchain or distributed ledger technology. It is possible to track in real-time any data that is stored on a blockchain. So, it eliminates the need for error handling. Even a single complaint might take many years to settle in the banking industry due to excessive bureaucracy.
The massive amount of documentation overwhelms any grievance redressal method a bank may use.
Blockchain in banking eliminates the need for mounds of paperwork, reducing errors and costs. Fintech companies, banks, and financial institutions stand to gain from the advent of blockchain in banking and finance.
You now have a solid idea of the many applications of blockchain in banking and finance. It all depends on how successfully you can integrate it into your current marketing initiatives. Depending on your organization, you may require a complete overhaul or simply a few minor changes to your marketing strategy.