How Does Blockchain Technology Change The Security Landscape In The Finance Sector?
With the emergence of blockchain, the finance sector is presently witnessing a massive transformation. The financial service sector and blockchain share a complex relationship, where, on one side of the coin, blockchain offers several opportunities to evolve how people exchange currency. While on the other side, blockchain is seen as a threat to the current established models of banking. Blockchain is a distributed digital ledger recording transactions which are tamper-proof. Several conventional banking processes thus could be modernized.
It is hard to ignore the benefits that the blockchain provides over the entire spectrum of financial services today. Whether it is settlements or payments, these benefits include security, cost-effectiveness, decentralization and immutability.
The NASDAQ Chief, Bob Greifeld predicted how the global economy would be disrupted when he said: “Blockchain technology continues to redefine not only how the exchange sector operates, but the global financial economy as a whole.” Financial giants like MasterCard, Standard Chartered, Visa are all reportedly keen on blockchain and its impact in catapulting them to the next level of growth.
FinTech space in general is gung-ho about the blockchain technology’s future. FinTech has already marked its presence by contributing in crucial areas like payment gateways, online forex trading and also bitcoin transactions. Their next vision being the financial services.
Mainstream banks all over the world have been waging battle at various fronts, largely due diminishing returns and profitability. With blockchain, banks are all set to lock horns with FinTech players, highly agile and capable, in order to gain the upper hand and offset their shortcomings.
FinTech players are posing a threat to the bank in areas such as Peer-to-peer lending, AI assisted services, crowd funding and they are far better positioned, mostly because of their high agility and customer- centric processes, to mount a serious challenge to present day banks who are marred by operational issues and are finding it very hard to keep up with cost pressure.
PROBLEMS IN THE CURRENT FINANCE SECTOR
- Firstly, because it is way too old and is an assemblage of paper-based processes along with industrial technologies wrapped up digitally.
- Because it is centralized, it is vulnerable to system failures, cyber threats and resistant to change.
- The current financial system is restrictive. It denies access to basic financial tools to millions of people out there in the world.
- High transactional fees
Is it all about trust?
The primary issue with digital economy is trust. Frequent data breaches and cyber intrusions impact trust. The businesses that depend largely on centralized data pools are vulnerable to disruption providing further impetus to adoption of Blockchain.
SO, HOW DOES BLOCKCHAIN SOLVE THESE PROBLEMS??
According to well-known statistics, nearly 40% of different financial third parties, like stock exchanges, money transfer services, other payment networks, undergo economic crimes.
Blockchain follows a decentralized approach whereas most of the banks and other financial organizations are based on a centralized data base. Centralized database makes the finance sector vulnerable to cyber threats.
KYC (Know Your Customer)
According to a well-known survey, financial companies spend anywhere between $65-$400 million per annum to keep up with KYC. KYC helps various businesses to identify and verify their clients. Blockchain would enable independent verification of individual from one enterprise to be accessed by other enterprises.
Payment processes can be highly transformed with blockchain deployment. It would open gates for secured and low cost payment processes between various enterprises or between any individuals. Currently, there are several intermediaries in our payment processes which will be eliminated by blockchain. The IT infrastructure that is used to process digital transactions also benefits enormously with the employment of the blockchain.
Capgemini, which is a consultancy estimated that the customers could save almost up to some $15 billion in insurance and banking fees per year using the blockchain based solutions. Santander, which is a European bank quoted that Blockchain Technology can save banks up to $20 billion per year.
It would really be exciting to consider the transformation that would take place in the trading platforms with blockchain deployment. NASDAQ is already exploring blockchain to further enhance its efficiency.
Since we can store any kind of digital data including computer codes on a blockchain, it enables smart contracts.
Is this the end of the conventional banking as we know it? This would depend on the how finance reacts to the emergence of blockchain. Blockchain technology is not an existential threat for those who make sense of the new technology model.
The seemingly invincible force of blockchain is poised to change this industry. The crucial factor that would determine if the finance sector will swim or sink is how well do they respond to the digital disruption taking place. The finance sector will emerge as a winner only if they transform, build a vision and align with this vision to disrupt, keeping themselves customer-centric. Personally, we would want this innovative FinTech technology transform the conventional banking into a prosperity platform for one and for all.
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