The use cases for blockchain in financial services and payments are virtually endless, but that does not mean the technology behind bitcoin is mature enough to be deployed and implemented just yet.
Financial services leads the maturity curve at present, but do not expect the adoption rate to increase until organizations commit to make investments in modernizing legacy systems – including being willing to take on a leadership role in the implementation of blockchain.
For those not familiar how blockchain operates, it serves as a public ledger of all bitcoin transactions, organized by “blocks” of data records in a linear, chronological order.
Since blockchain is able to systematize data and easily authenticate transactions, the technology can solve challenges facing many organizations in financial services, including banks and payment companies.
Below are four significant challenges solved by implementing blockchain:
High transaction costs due to intermediaries. Blockchain bypasses transactional verification in favor of public consensus where anyone can verify data, which removes the need for third-party vendors and operational fees that drive up transactional costs. The benefits of bypassing transactional costs makes international transfer and trade more affordable, while also providing a digital system that can adapt to advances in mobile payment.
High governance costs due to regulatory and auditory compliance requirements. Since the verification process leverages multi-party consensus from system users, Blockchain requires less governmental regulation and auditory compliance. Each transaction is verified, documented and listed for public accessibility, diminishing the need to rely on audits.
Slow transaction speeds due to multi-party checks and approval. As with many advances in the digital world, speed and convenience are paramount. Without as much red tape so to speak, blockchain does not require multiple checkpoints that slow a transaction, such as verification from separate banks.
Risk of fraud due to immutability or non-transparency of information. While many are concerned over digital privacy, blockchain prevents fraud by only included basic transactional details in the ledger, such as the value and location of the transaction. There is no personally identifiable information that is transmitted, enabling users to remain secure.
Blockchain solves many inefficiencies in financial services, but eventually, the technology will foster even greater innovation and enable better customer service.