Satoshi Nakamoto started the idea of blockchain in 2008 and created a digital cryptocurrency called ‘Bitcoin.’ Ever since that, blockchain has been one of the major disruptors in the BFSI industry. Blockchain is a cluster of blocks where information is stored, and each block is linked with the previous one, verifying and grouping information in these blocks. As per Fortune Business Insights, the blockchain market is expected to be worth USD 21.07 billion by 2025. BFSI was one of the early adopters of this technology, and now banks all over the world are adopting this to ensure secure, safe, and seamless transactions. Giants in crypto business such as Ripples focus on adopting blockchain by working alongside with banks and government.
- Minimal chances of forgery
- Lesser chances of system collapse like the one in 2008
- Less Transaction Cost, as there is no middleman
- Only tool for Centralizing, decentralizing, and distributing information
- Reduction in Budgetary Resources for Employee Training
Banking vs. Blockchains, Or Is There a Third Option – Hybridization?
Who is going to power the ‘future of money’? Both have their strengths and weaknesses. There are some processes that only a banking system can function, though it lacks innovation. Cryptocurrencies, on the other hand, are innovative and have massive fault tolerance capabilities but have not gained reliability in the banking system. It is still in its infancy stage; however, people who strongly believe in cryptocurrencies have a strong faith that blockchain will transform the banking system. Instead of thinking which options suit well, what is there is a possibility of a third option. Hybrid Blockchains, that lie between private and public blockchains. This novel technology can be used by banks to deliver safe and secure financial transactions. XinFin, Ripple, and XRP token are some of the well-known and leading hybrid blockchains. Recently, in January 2020, JP Morgan’s start-up called Kadena announced the launch of a hybrid blockchain solution to offer several benefits to its users. Hence, hybrid blockchains intend to increase the throughput of banks on the one hand and helping consumers to make easy and convenient money transfers on the other.
‘Out of the Ordinary’ Trends Around Blockchain
Blockchain in BFSI is also known as FinTech blockchain, and it has gained immense recognition and popularity worldwide. Massive investments are pouring in this space. Trends such as integration of blockchain with AI and IoT are likely to be witnessed in 2020; however, there are some peculiar trends as well. One of the famous beverage makers in New York called Long Island Iced Tea recently changed its name to Long Blockchain Corp. The company started investing in blockchain while continues to prepare iced tea for its customers.
As per the report, BFSI covered 41% of the share and is expected to emerge dominant in the blockchain market through the forecast period. From making secure payment transactions to making use of ‘smart contracts’ and other tools, the BFSI sector is highly embracing on blockchain technology. Cyberattacks and frauds are rampant in the financial world these days. Know Your Customer (KYC), fraud detection, trading platforms, and other services are enabling banks to forget the ‘old school’ methods of banking and adopt this technology. Blockchain offers a 360-degree security cover, thereby boosting the cybersecurity system across BFSI organizations.
Recent Significant Developments:
January 2020: BlackRock and Goldman Sachs are planning to take a stake in Chinese banks as banks in China are heavily investing in blockchain projects.
January 2020: CaixaBank announced the launch of a trade finance platform called we.trade. This launch aims to offer a user-friendly interface to users for making money transactions. Other banks such as Deutsche Bank, KBC, Nordea, Natixis, Rabobank, Société Générale (SocGen), UniCredit, and Santander launched the same platform.
January 2020: First ever blockchain trade transaction took place between Orpic Group and Oman Oil. Traditional Methods would take around 5-10 days, whereas this transaction was over within 24 hours. This deal will open doors for other industries too in the years to come.
July 2019: HSBC announced the use of a blockchain trade finance platform called Voltron to digitize the Line of Credit (LoC) process between countries such as China and Australia.
Cynicism Around Blockchain is About to End
While banks and insurance companies are ‘dabbling with’ blockchain, some are cynical of adopting this technology. These firms have happily erred themselves on the side of caution. Some people are still not clear on what blockchain is and how it is disrupting the banking and insurance sector. Though there is a lack of understanding and trust in this technology, users are trying to enter into this field by learning how to digitize assets via tokens. Initially, people only knew the concept of bitcoin, but now there is a hype around Initial Coin Offering (ICO).
The world is moving towards digitization, and this technology allows assets to be fully digitalized. Therefore, blockchain is here to stay. All we need is hire people with these skills, raise more awareness about blockchain, and let people move from the limited knowledge of bitcoin and cryptocurrencies. In the next coming years, blockchain will take the BFSI industry by storm.