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Blockchain is Reinventing Financial Services

Blockchain is Reinventing Financial Services

The global financial system moves trillions of dollars daily, serves billions of people and supports a global economy worth more than 802 trillion. It is the world’s most powerful industry, the foundation of global capitalism, and its leaders are known as the masters of the universe.

Consider the Bank offering internet banking but still issuing paper checks and running mainframe computers from the 1970’s, its customer tabs or credit card on state of art card reader to buy a Starbucks grandee latte, her money passes to no fewer than five different Intermediaries before reaching StarBucks bank account. 

The transaction takes seconds to clear but days to settle. 

There are a large multinational like Apple or GE that have to maintain hundreds of bank accounts in local currency around the world just to facilitate their operations, when such a corporation needs to move money between two subsidiary in two different country the manager of 1 subsidiary send a bank wire from his operations bank account to the other subsidiaries main account.  This transfer is needlessly complicated and takes days and sometimes weeks to settle. During that time,  niethier subsidiary can use the money to fund operations or investment, but the intermediaries can earn interest on the float. “The advent of Technology essentially took paper-based process and turned them into semi-automated semi electronic processes but the logic was still paper-based,” said Vikram Pandit former CEO of citi group.

 

Traders buy and sell securities on the world’s stock exchanges in nanoseconds, their trades clear instantly but take three full days to settle. Local governments use no fewer than 10 different agents like advisor, lawyer, insurers, bankers and more to facilitate the insurance of municipal bonds.

Finance is a Monopoly business:–  The year of the financial system powerful  intermediaries that consolidated capital and influence and often imposed Monopoly economics make the system work but also Slow it Down and add cost and generate outside benefit for themselves because of the Monopoly position many incumbents have no incentive to improve product increase efficiency improve the consumer experience for appeal to the next generation .

A New Look for the world’s Second – Oldest Profession

The global financial services industry today is fraught with problems it is antiquated built on decade old technology that is at odds with our rapidly advancing digital world making it often times slow and unreliable. 

It is exclusively reviving millions of people with no access to basic financial tools. It is centralised and exposing it to data breaches, other attacks or outright failure and it is monopolistic reinforcing the status quo and supplying innovation and promises to solve this problem and many more innovators and entrepreneurs devise new ways to create value on this powerful platform.

 

There are six key reasons why  blockchain Technology will bring about profound changes to this industry busting the finance monopoly and offering individuals and  institutions alike real choice in how they create and manage value. Industry participants the world over should take notice 

 

  1. Attestation:  For the first time in history two parties who need no not trust each other can transact and do business. Verifying identity and establishing trust is no longer the right and privilege of the financial intermediaries. Moreover, In the context of financial services, the trust protocol takes on a double meaning. the blockchain can also establish trust when trust is needed by verifying the Identity and capacity of any counterparty through a Combination of transaction history on the blockchain, reputation score based on aggregate reviews, and other social and economic indicators.
  2. Cost: On the blockchain,  the network Both clears  and settles  peer to peer value transfers,  and it does so continually  so that its  ledger is always up to date. with radically lower cost, Bank could offer individuals and businesses greater access to financial services, market and capital in underserved communities.
  3. Speed: Today, a remittances take three to seven days to settle. Stock trades takes two to three days, as bank loan trade takes on average 23 days to settle.  the Bitcoin network takes an average of 10 minutes to clear and settle all transactions conducted during that period. 
  4. Risk Management: blockchain Technology promises to  mitigate several forms of financial risk.  the first is settlement risk, the risk that your trade will bounce back ok because of of some Glitch in the settlement process.  the second is counterparty risk, the risk that your counter party will default before settling A trade.  the most significant is system risk,  the total sum of all outstanding counterparty risk in the system . the blockchain technology will also help to overcome the paper trails and significant delay to conceal wrongdoing.
  5. Value Innovation: The Bitcoin blockchain was designed for moving Bitcoin, not for handling other financial asset.  however, the  Technology is open source, inviting experimentation. Some innovators are developing separate blockchain,  known as altcoin. others are looking to leverage the Bitcoin blockchain size and liquidity to create spin off coin so called side chains.  Side chains are blockchains That have different features and functions from the Bitcoin blockchain but that leverage Bitcoins established network and Hardware infrastructure without diminishing it security feature.  Financial Institutions or already using blockchain Technology to record, exchange,  and trade assets  and liabilities, and could eventually use it to replace traditional exchanges and centralized Markets unending how we define and trade value.

The above benefits that is attestation lower cost lightning speed lower risk greater innovation of value adaptability have the potential to to transform only payments, but also  investment banking accounting and Audit, venture capital, insurance, enterprise risk management it, and other pillars of industry.  in the next blog I will explain how the golden 8 steps will change the financial services.

Note: If you are looking for a course in Blockchain please visit our Blockchain Course Page.