The financial services industry serves countless individuals and deals with trillions of dollars each day. Needless to say, the finance sector faces many challenges. Think about it, data breaches, excessive paperwork, and relying on third-party intermediaries could cause huge problems.
These challenges have caused huge financial losses every year. However, Blockchain technology just might be the perfect solution to all the common challenges that the finance sector is faced with. While this revolutionary technology has helped many different industries, it is worth noting that Blockchain technology’s primary use case was in financial services.
An enterprise blockchain can offer help to organizations in so many ways. Streamlining all the processes involved, reduced costs, high security and transparency, confirming and processing transactions almost instantaneously are just some of the most common benefits that this pragmatic technology offers.
Blockchain technology has single-handedly developed the decentralized finance industry, also sometimes referred to as DeFi. We will now discuss some common applications of Blockchain in the finance sector.
Cross Border Transactions
Cross-border payments or even transferring money from one country to another is an expensive and slow process, especially because financial institutions and banks charge an additional cost for every transfer. Moreover, the transfer process requires third parties to confirm the transaction before it can be completed or before the receiver can collect the amount.
Blockchain technology can help make this process very simple as it allows participants to send and receive money directly. As there is no need to wait for confirmations from third parties, there is no need to pay any extra costs. This makes the process quick and cost-effective.
Blockchain networks like Ethereum allow users or participants to send and receive money quickly from any corner of the world.
Currently, investing is not only costly, but it is also very time-consuming. However, this is attributable to the manual processes and different databases that the current procedure involves.
With the help of Blockchain, financial service providers can store the user’s information and data on a Blockchain network, which will bring transparency, make it easily accessible and also remove the risks of errors and frauds.
With Blockchain technology and credit card tokenization, service providers do not have to worry about compromising on security while ensuring transparency. What is credit card tokenization and how can it help? It is the process of de-identifying personal cardholder information by converting it to a string of randomly generated numbers. This process is very similar to encryption and helps prevent data breaches.
Without Blockchain, we would need an intermediary to create trust in order to lend a serious amount of money. On the other hand, with Blockchain technology, lenders and borrowers can directly deal with each other and decide on the installments, rate of internet and the duration of the transaction with the help of smart contracts.
It’s worth noting that once data, including smart contracts, is recorded on a Blockchain network, no one can alter or modify it in any way. These qualities of a Blockchain network add trust, making the entire process of lending safe and seamless.
Moreover, with yield farming DeFi, cryptocurrency holders can make profits by depositing their crypto assets into a lending protocol. Blockchain continues to provide us with new ways of making profits.
Well-known banks around the world, such as Credit Suisse and ING already have a Blockchain-based lending application.
Financial Record Keeping
Financial service providers are looking to take advantage of Blockchain enterprise solutions. Most importantly to keep records of financial history, profits earned, dividend distribution and other finance-related information about users.
Different shareholders can easily get access to relevant information through smart contracts. While public information is made transparent and visible to all the participants, private or sensitive data can not be accessed by anyone.
It wouldn’t be wrong to say that Blockchain in the financial services sector can offer multiple benefits. Blockchain is changing the way we store and record information, process transactions and deal with our finances.
Moreover, there is no central authority figure that controls the Blockchain network. However, each participant will be playing an important role. Blockchain can increase efficiency by 40% and reduce errors by up to 95%. Not to forget that this revolutionary technology can also reduce capital consumption greatly.
Blockchain can help different financial institutions and service providers to cut down costs, bring transparency and build trust. The future is digital and Blockchain-based solutions are expected to revolutionize many different industries, including the finance industry.