How Blockchain Could Disrupt the Banking and Finance Sector?

Vaibhav Srivastava
25 May 2022

There is no doubt in the fact that the potential in blockchain technology is enormous and it has begun to touch almost every sector with each passing year. The banking and financial sectors are one of those areas in which new technologies leave a big impact. Though blockchain technology is still emerging and is fairly new yet it is regarded by the masses as a game-changer owing to the huge ability to revolutionize the finance industry in the upcoming years. Blockchain in the banking and finance sector promises to minimize fraud, ensure secure transactions and reduce inherited risks in the global financial system connected internally with each other. So, take a look at this post on how blockchain could disrupt the banking and finance sector.

1. Blockchain in Stock Trading

Stock trading is a tough nut to crack when it comes to the number of complications involved in the process. Today’s financial market has a chain of brokers, investors, clearinghouses, exchanges and centralized institutions, responsible for clearing the investments. A single transaction can take as long as three to four days to process as these parties are still working on physical letters and using outdated systems which are not just slow but inaccurate and deceptive.

How does Blockchain Help in Stock Trading?

Blockchain could disrupt the banking and finance sector including stock trading in many ways and one of them is smart contracts which decentralized this complex process and expedite the transaction timing efficiently and accurately. Once the blockchain finds an investment authentic using smart contracts, a stock investment gets completed immediately, instead of waiting for it to be fulfilled for days. Other than this, blockchain comes with strict encryption protocols for security which minimize the chances of data breaches to a great extent.  

2. Blockchain in Smart Contracts

One of the best ways that blockchain could disrupt the banking and finance sector is through smart contracts. But do you know what they actually are? Well, smart contracts are programs kept on a blockchain and get executed when predetermined conditions that are mentioned in the contract are fulfilled. They work in a similar manner as a traditional contract does, however, the process of execution of the contract works automatically without time loss or involvement of any intermediary. 

How does Smart Contracts Work?

The basic idea behind the working of smart contracts is that they follow a simple rule: if or when a statement is true, then the other statements will be executed. These conditional statements are written in a coded format on the blockchain. When predefined conditions are checked, met and verified, a computer network runs the contract. These actions include transferring funds or sending notifications, among others. When the transaction is finished, the blockchain then gets updated. This in general means that the transaction now cannot be altered, and parties who have the permission can view the final result.

3. Blockchain in Trade Finance

In general, trade finance means the financial products and instruments which are used by organizations to run the import, export and international transactions. Due to trade finance, it is not just possible but easier for exporters and importers to carry out business smoothly. It is a comprehensive term that covers many financial products which are used by banks and organizations to do seamless transactions.

How does Blockchain Help in Trade Finance?

There are many industries including trade finance that are already suffering from logistical barriers for years owing to antiquated, uneconomical and out of date manual documentation approaches. Even in current times, there are banks that are still using physical letters of credit, to make sure that payment transactions will be made. With the blockchain technology in place, organizations can now prove details such as transaction particulars, product and country of origin along with other relevant documents, securely as well as digitally. Blockchain could disrupt the banking and finance sector by providing shipment visibility and delivery assurance to both importers and exporters passing through their pipelines.

4. Blockchain in Payment Transfers 

Trillions of dollars flow all around the globe through traditional rails complemented with added fees and slow payment processing. If you are working somewhere in the US and you want to send a part of your earnings to your family in India, you will be charged a flat $25 for the wire transfer along with an additional fee of up to 7%. In addition to this, your bank will get its commission, the receiving bank will get its commission and you will have to pay exchange rate fees. On top of that, the transfer will take another 5-7 days to register. 

How does Blockchain Help in Payment Transfers?

Simplifying bank transfers is one of the best ways that blockchain could disrupt the banking and finance sector by processing transactions instantly while maintaining the integrity of data. Thanks to Distributed Ledgers Technology (DLT) that it escapes centralized institutions and makes the process of money transfer as easy as simply clicking the “send” button. Once this action begins, the blockchain nodes work to accept or refuse the payment instantly. This way, the cash needs not to stay in the processing phase for days when the banks are verifying the transaction, without wondering about the transaction fees.

The Bottom Line

Blockchain technology is relatively new and it is not going to disrupt the market overnight. Industry experts believe that the blockchain and cryptocurrency altogether will replace the traditional banking infrastructure while others believe it will complement the existing one to make it more reliable and efficient. No matter how soon it will revolutionize financial services, but there is one thing for sure, it will transform this sector.

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