A technology as revolutionary as blockchain will undoubtedly have a major impact on the financial services landscape, many herald blockchain for its potential to demystify the complex financial services industry, while also reducing costs, improving transparency to reduce the regulatory burden on the industry. It also has the potential role as a precursor to extending financial services to the unbanked.
Blockchain’s impact on financial services
Industries including payments, banking, security and more will all feel the impact of the growing adoption of this technology. For example, four major financial institutions teamed to develop and implement the Utility Settlement Coin, a cash equivalent that will enable interbank blockchain exchanges. This clearly signals the banks’ intent to further develop and leverage blockchain technology in one way or another going forward.
How blockchain will change financial services
1. Blockchain will strip out the need for cumbersome legacy systems
Things that used to take three days and cost billions of dollars have been cut in half because of this disruptive technology, as opposed to the current model, which is far too cumbersome and bureaucratic. The legacy systems that banks have today cost millions of dollars, and they hire a consultant to manage a huge product, who reports to clients and managing directors about the status of the project, and it’s the blind leading the blind.
Blockchain offers enormous practical advantages to financial institutions in its ability to streamlines such processes. For example, a smart contract could support efforts to increase the speed and transparency of booking a trade.
2. Blockchain could be used for illiquid markets
There is a wide range of other applications for blockchain aside from Bitcoin transactions, many that could replace tasks that humans have traditionally been hired to do. For example, IBM has used blockchain for channel financing, and many feel that syndicated loans or private markets where there is currently no liquidity are other good candidates where blockchain is a natural fit.
You have to look at specific problems and see if blockchain is a solution rather than applying it everywhere.
3. Blockchain means Big Data
Blockchain adds to the value of the data that financial services firms collect, according to Rajeev Ranjan, a policy advisor with the Federal Reserve Bank of Chicago. But if more firms use blockchain to automate more data management and analysis functions, that could enable them to reduce headcount.
4. Blockchain could hit custodians hardest
Financial services intermediaries’ and service providers’ business models are at risk.
Unnecessary intermediation might actually go away, and custodians might be hit the most. They are still going to be there, but there will be a fundamental change in the way they conduct business. Firms will become more efficient, although some intermediaries might still be in place due to the trust factor.
5. Blockchain will cut out the middlemen
Blockchain enables you to exchange value with another person without a middle man. The flip side of that coin is that “middle-men” firms employ people to execute those functions, and such jobs may be in jeopardy.
In the future, this will allow you to trade value with another person without having a third person as an intermediary, which will open up so many opportunities – it is why people are so excited. Using blockchain, you can trade anything with anyone around the world without dealing with an intermediary.