Blockchain is affecting almost every industry sector. One area in which it’s having a bigger impact than most is banking and finance – especially when it comes to the new wave of innovative FinTech companies.
To understand why, it’s important to understand how Blockchain technology works. Originally developed for Bitcoin in 2008, at its most basic, Blockchain is a digital ledger of economic transactions that can be used to record anything of value. Data is distributed across thousands of computers or ‘nodes’, and continually updated as transactions occur. Every node has an administrator, but because the database isn’t stored in any single location, the records are publicly accessible and verifiable.
Significantly, the records can’t be controlled, or manipulated, by a single entity, so they can’t be hacked, or corrupted. And it’s this resilience and transparency that gives the technology its potential, especially when it comes to financial services.
Four big benefits for banking and financial transactions
Traditionally, banking transactions involved intermediaries. Not only did this slow down the process of carrying out a transaction, it also meant that an extra layer of bureaucracy was added, which resulted in additional costs. Blockchain eliminates intermediaries meaning the cost of performing transactions is lower.
One of the other primary advantages of transactions being processed without intermediaries is speed. Fewer intermediaries along with fewer processes means faster transactions.
Each transaction is recorded as a ‘block’ with an identifying ‘hash’ referring to the previous block. As each person in the network has a copy of the data, once data is recorded, it can’t be altered or erased without verification. This greatly reduces the risk of fraud.
Blockchain data is accurate and reliable. It removes the duplication of processes and paperwork, as well as the risk of error. Every process throughout the journey from payment to settlement becomes more straightforward and efficient.
It’s for all of these reasons that Blockchain has become one of the key technologies fuelling the rise of FinTech and allowing the disruption of the traditional financial services sector. While these new FinTech firms have already developed the systems to benefit from Blockchain, traditional banking and financial service institutions don’t have the infrastructure. Most are playing catch up and are still at the early stage at adoption while firms such as KoalaPays are creating the next generation of products and services in order to bring better value to customers.
Here are some ways that this is happening:
Cross border payments
Blockchain is not restricted by geography. It’s everywhere. This means a number of advantages when it comes to cross-border payments. With financial entities all over the world integrating Blockchain into their systems, it’s much easier to process FX and foreign payments. These have now become faster and less expensive than traditional cross-border payment systems such as Western Union. And because Blockchain does not require third party authorisation, the process is vastly accelerated.
Blockchain has big advantages for businesses too. Trade finance typically involves a lot of paper work such as purchase orders, invoices, credit notes, etc. While there are software packages designed to automate much of this, a lot of it still has to be done by hand. This can be extremely time-consuming and Blockchain eliminates a lot of this bureaucracy. Since it’s all done online, the need for duplication of admin and documentation is gone. All of the information can be integrated into one document, updated in real time and accessed by all parties on the network.
One of the most tedious, but necessary, parts of online transactions is identity verification. This can involve a number of security protocols, such as getting an SMS from the bank, or having to undergo a visual ID check by video-call. However, Blockchain makes it possible to re-use identity verification for a number of services at once, reducing the need to set up new checks. Once you’re identified on the Blockchain, you shouldn’t need to perform another ID verification with someone else on the network.
Blockchain isn’t just disrupting traditional banking, it’s creating a whole new type of banking that’s faster, costs less and is a whole lot more efficient.
Here at KoalaPays, we recognise the importance of being at the forefront of tech, and we continue to improve our systems and services to be able to provide the most efficient solutions to our clients.