How is Blockchain Revolutionizing the BFSI Sector ?
Blockchain technology drives tremendous changes across the BFSI industry. The decentralized financial services have brought up huge improvements to the centralized banking system.
So, let’s have a look at some of the major use cases of the blockchain technology in the BFSI sector:
- Know Your Customer (KYC)
Banking and financial institutions are highly concerned about the increasing costs that they have to bear to comply with the KYC. It is a lot of time-consuming processes; and it has to be performed individually by all banks and money based institutions. Nowadays, the banks need to upload the customer KYC data into a central repository to check the information of an existing or new customer.
With the help of a blockchain technology system, independent verification of each customer by one financial organization can be accessible for other organizations so that the one does not have to restart the KYC process again.
- Auditing and Bookkeeping
Standardizing the financial statement with the help of blockchain technology allows the auditors to verify the most crucial data easily and gradually. This decreases costs and even helps to save a lot of time. Blockchain technology makes it much more possible to prove the integrity of electronic files.
- Smart Contracts
The smart contract is a series of code, which runs when certain conditions written on it are completed.
With the help of smart contracts for banking, financial transactions help increase the speed of the complex processes. This also helps to make sure the accuracy of transferring the information as the transaction will be approved only if all the written conditions of the code are met.
- Digital Identity Verification
Identity verification is a significant part of each and every transaction that is made with your debit card or at your local bank branch. Your identity is indirectly linked to your assets.
- Fraud Reduction
The involvement of money in any circumstances increases the chances of fraudulent activities. Around 40% of the financial bodies are susceptible to heavy losses relating to economic crimes. The reason behind this can be the usage of a centralized database system for both the money and operations management. Blockchain is a secure, non-corruptible technology that works on a distributed database system. Therefore, there is no such chance of a single point of failure. All the transactions are stored in the form of a block with the help of a cryptographic mechanism that is very difficult to corrupt. Using blockchain technology can help to eliminate the cyber-crimes and attacks on the financial sector.
- Syndicated loans lending
There is one area of banking where the multiple institutions have come together to form consortiums to facilitate blockchain. Credit Suisse is one of those 20 big institutions, which are as of now working towards putting syndicated lending on the blockchain with the distributed ledger technology, more commonly known as the blockchain technology. As of now, this is an area that is still quite behind in terms of technology used. Fax communications, large delays in getting loans, and other hurdles are faced at the time of making and processing syndicate loans.
- Global payment options
Blockchain’s latest technology is internet-based and does not need any of the specific setups of operating users can access the data and conduct different transactions across the globe using their account public and private keys.
- Blockchain security
The first priority for any financial institution is in the area of security and privacy. And given the right and popular security patterns blockchain holds, most banks are obviously going to use this in storing assets that are of extreme value.
- Blockchain with AI
Banks do have a lot of tasks to process daily. And given that blockchain is now incorporated with Artificial Intelligence, most financial institutions will certainly want to use this because it will help in reducing their work stress and the rest. This will cover tasks like data storage, data monetization, and so on.
To Sum Up
This unique technology offers the banking industry with many unique opportunities, but certain challenges must be overcome for noticeable impacts to occur in the banking sector.
More so, the need for regulatory functions and oversight needs to be highly addressed by some of the relevant authorities. The financial sectors are synonymous with huge amounts of data. Moreover, data scalability must be sorted out prior to deploying blockchain in the financial sector.
In summary, blockchain can impact and revolutionize the banking financial sector. The only thing needed is its right application and feasibility.