Last year, the Wharton School of the University of Pennsylvania published a detailed analysis of the impact that blockchain will have on the financial industry. The article was based on a compilation of opinions from a variety of experts, such as:
Angela Walch, a law professor at St. Mary’s
Kevin Werbach, a legal and ethical studies professor at Wharton
Bruce Weber, a dean with Lerner College
These experts shared a variety of insights. They believe that blockchain will create an entirely new foundation for the financial industry, which will lead to a number of new services. However, the biggest changes will probably come in the form of new variations of existing services, which can be provided more securely, cost-effectively and timely.
Blockchain Transforms the Financial Industry in Unanticipated Ways
A year after the Wharton School published its findings, some of its predictions have started to come to light. Blockchain is already being utilized by many major financial institutions. Business Insider reports that banks spent $1.7 billion on blockchain technology last year.
Bank of America, Zealand Banking Group, Fidelity Investments, Citi Bank and HSBC are a few of the financial institutions that have made blockchain investing a priority. Early market data suggests that this technology is helping them immensely, but the overall impact on the financial industry remains to be seen.
Blockchain technology is the flagship creation of the fourth industrial revolution. As we have seen with other phases of the digital revolution, emerging technologies are disruptive to a wide range of older industries. Previous business models need to evolve with blockchain. This new technology has rewritten the rules and provided new business models that are considerably more reliable and efficient.
For the most part, blockchains have been celebrated because they create convenience, security and can save businesses money in the long run. Yet, there is one industry that fears blockchains the most. The banking sector is worried that blockchain could make the need for banks – or at least banks as we know them today – obsolete. While some of the largest banks are investing in blockchain, others fear they may not be able to acquire the capital needed to invest in blockchain. They may worry that they would lose market share and end up merging with larger financial institutions.
Read on to discover the different ways that blockchain could disrupt the banking sector.
#1: Payments
If you want to transfer a payment through your bank account, it can take days to process. If the payment is sent internationally, then the transactional cost can be significant. This is not the case with bitcoin payments. They are executed via the blockchain and a bitcoin wallet. They take a maximum of 16 hours and do not involve third-party verification fees.
Note that some bitcoin wallet providers may attach fees to payments, but you can always get value for money and reliability with wallet providers like Luno.
Financial institutions are using the same technology to expedite their own payments. A study by American Express predicts that 65% of banks will use blockchain to speed up financial transactions by next year.
#2: Improved Security
One of the top benefits of blockchain is security. A Deloitte survey found that 71% of experts believe it is more secure than traditional enterprise IT solutions.
What some people do not realize is that blockchains can be private. They can be used within an organization or can be completely public. Banks are often a target for hackers wanting to steal sensitive and financial information. The use of a private blockchain within a bank could be used to keep customers safer – and this could be used in any organization or governmental department.
Unless banks can come up with an equally bulletproof way of protecting their customers. Their hand may be forced and they may have to adopt blockchain for this purpose.
#3: Fundraising
New startups can often face difficulty raising funds for their idea. Banks are less likely to lend money today and this has opened up an opportunity for the blockchain.
Blockchains can be used to power Initial Coin Offerings (ICOs). ICOs work by allowing the startup to sell bitcoin and other cryptocurrencies. These coins will become valuable depending on the success of the business venture. It is a convenient way for new businesses to seek investment from a wider audience – and reduces the need for a string of bank meetings.
#4: Credit Checks
Before a bank agrees to a mortgage, loan or credit card, they must execute a number of checks to ensure you have the ability to pay back the money they will lend, as well as the terms of the agreement such as interest.
Errors within credit scores are not as rare as you may believe, and they could wrongfully stop someone from purchasing their dream property. Blockchain could remove doubt from an incorrect credit check and allow people to view their credit history at any time, simultaneously enabling them to spot any errors.
Blockchain – Today or Tomorrow?
Blockchain technology may have been around for years, but implementing it within industries away from crypto is relatively new. The most important applications of blockchain in the banking sector may not occur immediately, but they are definitely in the pipeline. Work is still to be done on blockchain technology as it trail blazes an array of industries. One thing is certain blockchain is disrupting the global financial industry as we know it.