Baby Boomers and Gen X (Generation X) might have memories of all baking done on paper slips, big ledgers. All that has changed to the point where you use a few phone touches and your transactions are done.Who visits the bank anymore?
In this digital era, age-old traditional business model is fast fading… To sustain market share and to have an edge over competitors, it’s essential to redefine your business models.
Traditional banks and financial services companies are fast becoming outdated in terms of technology. Most of the budget in these financial services (including banks) are used for maintenance/ support rather than for modernization or digitalization.
Unlike traditional companies and banks which wait until a technology reaches a certain level of maturity before investing into it, fintech companies use modern technology to make financial services more efficient.However, the use of blockchain is gradually increasing not only in fintech companies but also in the traditional incumbents as well.So, what exactly is a blockchain and how it helps transform financial services?
Blockchain is a form of distributed ledger that stores a permanent record of transaction data. Unlike traditional databases, distributed ledgers are managed through a P2P (peer-to-peer) architecture and do not have a centralized data store making it more secure. They are usually associated with crypto currencies like Bitcoins.
Long term cost benefit
From a technology perspective, all the traditional financial services processes are facing operational inefficiencies due to lack of modern technology for storing records of trade, transaction or transfer of information.
Since there are two separate records, a lot of effort and resource has to be spent reconciling the records, this is where blockchain comes into play. It reduces the need for obtaining, checking and reconciliation.
During market stress, fragmentation of security operations could lead to trade failure. It is hard to identify who owns what, and which transactions or assets were linked to whom. Blockchain helps to simplify this whole process thereby increasing efficiency.
Speed of execution
Mutual distributed ledgers use computer protocols to facilitate, verify, and negotiate a contract in accordance with business rules. Since these tasks can be customized on a contract-by-contract basis, transactions can be simplified by removing intermediaries. Thus, trades and contracts can be executed at a much faster rate using blockchain technology.
Blockchain technology plays a vital role in transforming the financial services industry and is poised to truly disrupt various industries by making processes more transparent, secure and efficient.