How the Blockchain Will Impact the Financial Sector
Blockchain used in finance?
Blockchain innovation is a decentralized, circulated, and public record that is utilized to record exchanges across numerous PCs inside an organization. … In the account business, this basic innovation permits the exchange of cash with certainty that the exchange is secure and dependable.
How Blockchain Technology Is Transforming the Landscape of Financial Services Sector:
Blockchain, primarily a distributed ledger technology (DLT), is a disruptive application that has a tremendous potential to transform the workings of the financial sector in recent years. However, the banking sector has always been open about adopting new technology to turn conventional banking practices to convenient banking practices.
Let us look at how blockchain technology is transforming the financial services sector:
• Banking space has been facing several issues regarding the recoverability of loans granted by the banks. Using Blockchain technology can make it possible for the transactions to be recorded in a block. Generating the blocks of every transaction will enable banks to trace the diversion of the loaned funds.
• It is essential for the banks as well as other financial institutions to create a database containing all the information of the customers, including their identity proof in order to avoid money laundering or other forms of fraud. Blockchain technology can help banks conquer the problem of establishing identity by providing cryptographic protection that ensures the involvement of all parties to the transactions.
- The domestic payments generally take minutes to hours to complete, but it takes several days to complete the transaction for cross-border payments. Besides, inadequate infrastructure creates security concerns while making an international transfer. Hence, these payments are prone to cyber-attacks that can interrupt transmission.
- Blockchain technology streamlines payment systems, reducing the operational costs, human blunder, and falsification. It also helps banks get rid of all intermediaries in the payment processing system to lower the costs of process payments between clients and banks.
Blockchain Technology Plays Pivotal Role in the RegTech Revolution:
The Regulatory Technology (RegTech) in financial services encompasses digital services on big data, biometrics, artificial intelligence, and machine learning to comply with regulatory requirements more effectively. And this industry is projected to cross $127 billion per year by 2024.
Blockchain offers many advantages that help boost RegTech evolution. It allows transparency because of its improved security via cryptography, distributed ledger, enhanced record-keeping, and faster and cost-effective through automation.
Here some uses of blockchain technology in the RegTec industry:
Regulatory Fund Management
Smart contracts offer a significant advantage because of automation and the ability to incorporate the essential aspects of regulatory reporting and comply with a fund’s regulatory norms in real-time.
Record Keeping
The vast amount of information collected by big data can create a collection of unstructured data that have no use. RegTech companies implement blockchain technology to address this issue by producing data that is transparent and using a distributed ledger to make it obtainable for internal use, protect from frauds, and document for audit purposes.
Anti-Money Laundering, Client Onboarding, and Fraud Prevention
Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations for onboarding clients can be challenging for financial institutions as they need to gather their data on possible clients before they begin doing business. Also, they need to update the data regularly for existing counterparties, which is expensive and can take a lot of time. Banks can implement universal ledgers to distinguish their customers, track transactions, and identify fraud.
Many RegTech companies offer cryptocurrency firms solutions to help authenticate identity quickly and cost-effectively build on improved data analytics or biometrics in compliance with comprehensive regulations.
Monitoring
Monitoring transactions increases the transparency that blockchain offers because of the growing use of virtual currencies for money laundering. Additionally, it provides better traceability and quicker analysis when assets are digitalized.
