Blockchain allows the financial services industry to optimize processes because it shares data securely, efficiently, and transparently.
When it serves as the principal mechanism for a digital cash transaction, blockchain reshapes finance. The existing business models for the industry become immediately inefficient. It is such a disruption that the profit pools are at-risk because of the presence of new providers.
How is blockchain such efficient technology? The distributed ledger is the key that unlocks the security and transparency features of this innovation. Because these traits are favorable from an auditing perspective, several competitive advantages become available with implementation.
Best Ways to Use Blockchain for Finance
According to Deltec Bank, “Blockchain offers several applications for the finance industry to consider. Smart contracts create executable events that are independent of third-party providers, which means they can take on everything from stocks to settlements.”
These are the best ways that institutions are using this technology right now.
1. Cross-Border Transactions
Transferring funds across a border is a notoriously slow process. It can impact entire economies because of the expenses of the centralized banking system filter down to everyone. Blockchain provides a P2P network that can verify transactions so that it takes seconds to process thousands of requests across multiple time zones.
2. Point of Sales Systems
A decentralized point-of-sale system makes it easier for a business to accept cryptocurrency as a payment. This technology reduces or eliminates the need to pay for costly merchant service programs, while customers get to save because the overhead on transaction fees can go away. Companies can use the ledger system to manage their cash flows more effectively at the same time.
3. Smart Bonds
Instead of using a traditional bond, smart contracts allow investors to hold a “smart” version of this investment instead. This product uses blockchain to automate registry services, allowing for instant settlements when necessary.
4. Borrowing and Lending
Before big banks took over the process, borrowing and lending was a peer-to-peer mechanism. Blockchain brings that concept back. You don’t need to trust that your neighbor will pay you back with interest because the blockchain can initiate processes that guarantee this happens. Commercial lenders also get to benefit from this method today. With syndicated lending, there are fewer risks to manage so that it can become cheaper and more profitable.
5. Clearing and Settlements
The cost of clearing and settlements could be up to $20 billion per year. It usually takes three days for the cycle to complete, which means businesses must go without their funds unless there are specific programs in place that allow for immediate access. Blockchain doesn’t need to make exceptions to its rules because it simplifies the process on a global scale.
Blockchain Will Improve the Finance Industry
Banks are facing pressure to integrate P2P-backed networks to create faster, more affordable services. Blockchain offers a trustless system that allows individuals and companies to divorce themselves from the dependency of centralized banks.
As this technology develops, you will see more applications in the finance sector that benefit everyone. We will get to enjoy improved banking, cross-border movement, and better services all because of Blockchain.
Disclaimer: The author of this text, Robin Trehan, has an Undergraduate degree in economics, Masters in international business and finance and MBA in electronic business. Trehan is Senior VP at Deltec International www.deltecbank.com. The views, thoughts, and opinions expressed in this text are solely the views of the author, and not necessarily reflecting the views of Deltec International Group, its subsidiaries and/or employees.
About Deltec Bank
Headquartered in The Bahamas, Deltec is an independent financial services group that delivers bespoke solutions to meet clients’ unique needs. The Deltec group of companies includes Deltec Bank & Trust Limited, Deltec Fund Services Limited, and Deltec Investment Advisers Limited, Deltec Securities Ltd. and Long Cay Captive Management.