If you want to stay up to date on all the changes that are taking place in the financial industry, you need to read this post. It will dive into how blockchain applications for banking will affect financial services.
What the Future Holds for Banking
Ann Boden’s new book, “The Money Revolution,” considers blockchain technology to be, "the most revolutionary money change on the horizon and may make a huge difference across the fintech sector."
Considering the fact that Boden has worked in the financial field for three decades, her opinion seems pretty trustworthy. But how could blockchain be so disruptive?
Boden points out that typical consumer behaviors have changed. For example, our mobile devices have become an integral part of our everyday lives. This has led to an increase in mobile payments.
Although banks have enjoyed a century of unthreatened dominance, evolving consumer behavior and advances in technology may upset that power. With disruptions like blockchain and cryptocurrencies, these financial institutions are looking for ways to keep up and stay relevant.
Boden believes that banks will begin utilizing blockchain technology. She says it, “is likely to be used in certain aspects of the banking business,” but, “you won't see it as a wholesale change for the banking platform."
According to Deltec Bank, “Although the future of banking does not exclusively involve blockchain, this technology will almost certainly play a role in disrupting the banking system.” Banks need to take that possibility seriously in order to keep up with time.
The Impacts of Blockchain Applications for Banking
To get a better idea of how blockchain could stir things up, let us look at a few specific examples.
Changes the Payment System
With just an internet connection, cryptocurrencies allow instant, global payments. These transactions can remain anonymous, secure, and affordable.
The transaction fee is only a few cents, making it attractive to merchants looking to avoid excessive fees.
Eliminates Complications of International Transactions
Overseas transactions often include:
- High fees
- Slow processing
- Risk of theft
- Legal and tax complications
With a blockchain system, these inconveniences would be a thing of the past.
Reduces Risk of Bank Failures
When you look at your bank account, your account balance is not an accurate depiction of what the bank is actually holding. This presents a problem when numerous withdrawals by a large number of customers occur at once, causing bank failure.
In the future, blockchains might become representations of bank accounts. This would make accounts more secure, convenient, and cost-effective, while also decreasing the risk of bank runs that lead to bank failures.
Expediates Stock Purchases
A recent announcement from Overstock revealed that the retail company is planning to implement a blockchain system that allows the corporation to issue bonds directly to investors.
Another company, Coinsetter, is going to use blockchain technology to speed up stock purchases. Although such transactions typically take T+3 days to settle, the Coinsetter’s blockchain system will enable T+10 minute transactions.
Disrupts Investment Banking
Raising capital can be costly when issuing shares through an IPO. Blockchain could allow you to avoid those costs.
Here’s how it works:
- Shares are issued on the blockchain;
- Those shares can be sold for money;
- Secondary markets on the blockchain make it possible for those shares to be exchanged.
Financial Services That are Implementing Blockchain
After learning about how blockchain applications for banking will impact the financial industry, you are probably wondering which organizations are already using this technology.
Here are a few examples:
- NASDAQ OMX Group Inc. - This corporation has stated that its use of blockchain will, “reduce the time, costs, and points of friction across the capital markets.”
- UBS - This investment bank has designed its own blockchain lab for research purposes.
- BNP Paribas - This investment bank is contemplating how to use blockchain for currency funds and order processing.
We can’t know for certain what the future holds. But from the looks of it, blockchain applications for banking will play a role. The question then becomes, are banks prepared to begin using the latest technology in order to keep up?
Disclaimer: The author of this text, Robin Trehan, has an Undergraduate degree in economics, Masters in international business and finance and MBA in electronic business. Trehan is Senior VP at Deltec International www.deltecbank.com. The views, thoughts, and opinions expressed in this text are solely the views of the author, and not necessarily reflecting the views of Deltec International Group, its subsidiaries and/or employees.
About Deltec Bank
Headquartered in The Bahamas, Deltec is an independent financial services group that delivers bespoke solutions to meet clients’ unique needs. The Deltec group of companies includes Deltec Bank & Trust Limited, Deltec Fund Services Limited, and Deltec Investment Advisers Limited, Deltec Securities Ltd. and Long Cay Captive Management.
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