The last few years shook the financial services scene to the core. The rapid digital transformation of banking organizations and the rise of new consumer habits enabled by digital devices had a massive impact on the financial landscape.
Traditional financial institutions now compete with truly global, low-cost and multiservice digital banks where customers can access accounts through mobile apps and pay with a tap on their wearable devices. Customers want better services, seamless omnichannel experiences and more value added for their money.
That’s why banks are doing everything they can to address these new demands. One of the best strategies is investing in quality software and highly innovative technologies such as blockchain.
Read on to see why blockchain is such a strong technology trend in financial services software today.
The rise of blockchain
If there’s any technology that causes just as many controversies as it brings hopes, it’s blockchain. This sophisticated and often misunderstood technology is on its way to becoming one of the most revolutionary solutions in the digital world.
According to the Cambridge Centre for Alternative Finance, 69% of banks are already experimenting with blockchain. A report from PwC showed that 77% of financial institutions are planning to adopt blockchain as part of their production systems by 2020.
But let’s start with this question:
What exactly is blockchain?
Blockchain is basically a decentralized ledger (list) of all transactions that records transactions occurring across many computers.
In 2019, we expect some long-awaited implementations of blockchain to appear on the financial scene. With the recent surge of funding into blockchain commercialization, we expect that Fintech may move from retail-focused to include more public and institutional uses that could help the technology gain a stronger foothold on the financial scene. For example, a Swiss city has successfully introduced a blockchain-based digital identity solution in a test for its e-voting system.
Many of the companies receiving funding right now will push blockchain to the mainstream and allow it to become an integral part of the technology and operational infrastructure used by financial institutions.
Why should banks care about blockchain?
There are two critical aspects that bank executives, private equity firms and Fintech entrepreneurs appreciate in the blockchain.
First, blockchain solutions offer an innovative pathway to reducing the cost of the financial services industry infrastructure. In fact, blockchain technology is expected to save banks between $8-12 billion a year.
The blockchain technology can help in financial transactions, automated contractual agreements, and more. Generally, the reduction in cost comes from the fact that blockchain may remove the entire layer of overhead dedicated to confirming user authenticity.
Here’s how it works:
In blockchain, a distributed ledger system performs confirmation through the consensus process which reduces the need for intermediaries that need to touch the transaction and extract a toll for it. By removing intermediary services from the picture, financial institutions stand to save up a lot of resources.
Second, the list of potential uses of blockchain almost has no limits. Experts predict blockchain implementations to impact services such as cross-border payments, insurance, clearing, and settlements, or trade finance.
Deloitte’s 2018 Global Blockchain Survey indicated that companies are starting to move from proof-of-concept projects to real-world applications, so we might see some products based on these use cases soon.
It’s time to trust blockchain
Financial services is a highly regulated sector where security plays a key role. Data storage, privacy, and protection are seen as the primary regulatory barriers to innovation in the financial industry.
The one thing that stands between blockchain and mainstream adoption is trust. For the technology to be adopted on a large-scale, it needs to migrate trust from the traditional authority of today’s financial services to the distributed model of authority.
And to that, blockchain needs to distance itself from the cryptocurrency scene. Financial institutions and consumers have to become aware that the blockchain can have numerous use cases that are entirely unrelated to cryptocurrencies.
Start innovating with blockchain now
There’s no denying that blockchain is on its way to becoming an essential technology for the financial services industry. According to PwC, 77% of financial institutions will increase their internal efforts to innovate – and that includes investing in brand new technologies like blockchain.
If you want your organization to stay on the leading edge of the financial sector, you need to start looking at innovative technologies like blockchain. This is the right moment for organizations to leave the sidelines and start testing, planning, and learning from blockchain applications.