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KPMG US
Blockchain to Revolutionize the Financial Industry
Currently, we are going through one of the most significant transformations in the banking industry. According to KPMG US, this transformation— termed as FinTech revolution—is about the innovative use of new technologies and business models to enhance the design and delivery of financial services. Blockchain promises enhanced experiences in dealing with financial services. Blockchain is a decentralized digital ledger that uses computer science techniques to store, move and transact entities of value such as currency, coins, IDs, stocks, points, miles, intellectual property, and more. It provides a public ledger of every transaction that’s ever happened on the network and streamlines business processes by removing the role of intermediaries. Backed by its distributed nature, Blockchain builds online collaboration and trust allowing transactions to be secure, anonymous, peer-to-peer, and instantaneous.
The financial world uses intermediaries to serve as a database or ledger to record how much money everyone has at any given time. But intermediaries have limitations! They slow down financial transactions, introduce unnecessary errors and costs, and in some cases, prevent financial inclusion opportunities to many in the underserved world. Blockchain technology tackles these limitations and makes financial services faster and more efficient.
Adopting Blockchain technology, however, doesn’t come without any challenges. The prominent ones being lack of a proven scalable system that uses Blockchain, lack of standards, high costs, high energy usage (in case of Bitcoin Blockchain), among others. The challenges aside, the potential that Blockchain offers is undeniable. Let’s consider payments,as an example. In the presence of intermediaries, it could take up to five days to send 50 dollars from the U.S. to Philippines. With the help of Blockchain technology, all the unnecessary delays and cost of the process are removed that enables the recipient to receive money almost instantaneously from the sender.
Blockchain provides a public ledger of every transaction that’s ever happened on the network and streamlines business processes
The recipient can then immediately use that money according to their needs and benefit from the global financial services system. For instance, ABRA, a startup, utilizes Blockchain to enable consumers to send and receive money internationally, instantaneously.
Another important application of Blockchain technology is in providing immediate access to the capital in the trade and supply chain environments that rely on antiquated commercial banking system. For e.g., a farmer selling crops to a buyer can receive payment for its crop as soon as it ships the crops as opposed to several days;only possible through a Blockchain enabled trade settlement system enabling the buyer to confirm and track shipment of its goods by the seller. Another interesting application of Blockchain is the Initial Coin Offering (ICO), where allows entrepreneurs or startups to raise funds without having to go through the traditional capital raise process, which in many ways limits supply of capital to deserving entrepreneurs. For instance, Ethereum, the Blockchain platform that enables smart contract, was itself a successful ICO project that used ICO to raise initial funds.
Although improvements have been made in trade and post-trade processing, they have not kept pace with front-office advancements by any stretch of the imagination. Assets that trade electronically in the blink of an eye often take days to settle.
Blockchain is one such FinTech that has the potential to solve current problems in Capital Markets
and in the process help save billions of dollars in back-office and settlement costs.
In a Blockchain-based distributed ledger environment, clearing and settlement can occur within seconds. Perhaps more important, Blockchain distributed ledgers can be optimized to clear and settle at different speeds depending on the market participant’s needs. However, integrating distributed ledger and Blockchain solutions into legacy bank infrastructure is not simple. Multiple points of integration and further developments are required to reach a production-ready state.
Blockchain can also be a disruptive force challenging many of todays’ disruptors themselves like Uber that play the role of intermediaries. Uber matches drivers with riders, and this process can be automated and programmed by Blockchain.
Blockchain can revolutionize financial services the way internet has democratized information and the way smartphones have revolutionized communication. The technology has the potential to transform industries in radical ways whether it is financial services or healthcare or transportation or even the diamond industry. Financial services institutions should be eager to engage in experimentation to gain the necessary knowledge and expertise. This will give them the opportunity to gain the necessary experience enabling them to launch new products and services that meet the needs of digital customers.
