How Blockchain Is Changing Banking and Financial Services

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Blockchain Revolution in Banking Finance Sector
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A Glimpse of the Future

• Blockchain technology has the potential to save
  billions of dollars by reducing transaction and
  processing costs.
• The technology used for multiple processes in
  banking and many financial entities is already
  adopting the future tech.
• The Australian Securities Exchange has started to
  use this distributed ledger technology for
  cutting costs and improving efficiency.
• JP Morgan, one of the leading banks in the United
  States, has its own blockchain Quorum and
  cryptocurrency called the JPM Coin.
• Glimpses of events like this should speak volumes
  about what the future holds for banking and
  financial services when it comes to utilizing the
  new technology.

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A Few Applications - Reducing Instances of Fraud

• With immutability and decentralization,
  blockchain technology would help mitigate
  instances of fraud
• Leading reports project a 45 probability of
  financial intermediaries like stock exchanges
  experience financial crimes.
• Most of the banking systems are built on
  centralized databases, which naturally makes it
  more vulnerable to cyber-attacks.
• However, with the new technology, the instances
  of attacks on centralized points of vulnerability
  reduce considerably, almost bringing it down to
  zero.

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A Few Applications - KYC

• Growing instances of money laundering, financial
  institutions obligated to comply with the KYC
  (Know Your Customer) norms
• The institutes spend anywhere from 60 million to
  500 million every year for establishing KYC
  compliance, as reported by Thomson Reuters
  survey.
• These regulations, in addition to reducing money
  laundering, are also expected to mitigate
  terrorist funding activities.
• Blockchain allows an organization to access the
  verification details already performed by other
  organizations.
• Hence, avoid the repetition of the KYC process
  and consequently, the cost involved and the time
  spent.

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A Few Applications - Smart Contracts

• Smart contracts are self-executing programs that
  govern the functionality of a blockchain.
• The execution of a smart contract can be
  programmed to happen after two or more parties
  enter the credentials.
• This entry of credentials can automate financial
  transactions by reducing the time taken without
  compromising on trust.

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A Few Applications - Clearing and Settlement

• Record keeping of loans and securities alone
  costs investment banks billions of dollars.
• In todays messy ecosystem, the current system is
  managed by messages and manual reconciliation.
• However, blockchain can change the way it
  functions.
• The Australian Securities Exchange is a living
  example of the transformation that the new
  technology can bring about.

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A Few Applications - Trade Finance

• Letters of credit are being sent by fax or post
  around the world.
• However, with the blockchain coming in, all the
  parties involved can access the same information
  without compromising on the security.
• The head of innovation at HSBC Products has
  stated that the the new technology has the
  potential to be the genuine game-changer in this
  segment.

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A Few Applications - Syndicated Loans

• In the United States, it takes an average of 19
  days for a bank to settle the transaction when a
  company raises money using a syndicated loan.
• When the loan changes hands or when the borrower
  decides to foreclose the loan, the communication
  is still exchanged by fax.
• Today, there might be challenges in finding a
  separate blockchain to connect with each other to
  facilitate the change of ownership of a loan.
• However, in the long run, it is quite clear that
  the technology will evolve to accommodate this
  process as well.

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The Conclusion
Clearing and Settlement

• Right from 1765, it is quite known that any
  Revolution is met with resistance! When Bitcoin
  was born, the finance and banking sector did not
  look at it as a Revolution but rather resist the
  blockchain and the advantages it brings about.
• However, as time passes, the advantages of the
  new technology will slowly become more accepted.
  Moreover,it might not be long before we see
  decentralized banking become a utopian reality.

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