Five ways blockchain is revolutionizing financial services

Baozou Commentary : Blockchain, known as the "new generation of the Internet", can promote the reform of enterprises in various fields, especially in the financial services field. This article analyzes in detail the reform methods of blockchain in five fields, including: settlement in asset management, claims processing in insurance, trade finance in supply chain, international payments in payment, and KYC in partnership. It is believed that the advantages of blockchain such as decentralization, reliability, simplified processes, transparency, traceability, cost savings, reduced errors, accelerated transactions, and improved data quality can greatly improve the financial services field.

Translation: Nicole

Blockchain has long been hailed as the “new generation of the Internet” that can promote reforms in various fields, especially in the financial services sector. But how exactly will it reform these fields?

A brief summary of blockchain

First, let’s briefly summarize what blockchain is and its benefits. We quote the definition of blockchain from the Financial Times:

“Blockchain is a shared digital ledger that records transactions and verifies them across a network of computers, without a central ledger. Encryption technology eliminates data fraud and protects against hacker attacks.”

So why is everyone, including us, so excited? Because blockchain has a ton of advantages: decentralization, reliability, streamlined processes, transparency, traceability, cost savings, reduced errors, faster transactions, and improved data quality, to name a few.

Let’s take a look at how blockchain can revolutionize the financial services industry — ultimately creating a more satisfying consumer experience.

1. Asset Management

Use case: Settlement

Traditional asset management transaction processes are slow, manual, cumbersome, and risky when it comes to reconciliation and matching—especially for cross-border transactions and non-traditional investment products such as loans. Currently, each participant in the transaction cycle (such as brokers, middlemen, custodians, and clearing and settlement teams) retains a copy of their own transactions, which is extremely inefficient and prone to errors.

Blockchain technology can simplify the entire process and provide an automated transaction cycle in which all parties can access the same transaction data. This can not only save a lot of infrastructure costs, but also manage data more efficiently, improve transparency, speed up processing cycles, reduce reconciliation time, and remove intermediaries.

2. Insurance

Use Case: Claims Processing

Fraudulent claims, manual processes, fragmented data sources, single-point-of-use policies and traditional underwriting models are all significant challenges experienced by the insurance industry today – and are responsible for lower consumer satisfaction.

Creating smart contract policies on the blockchain is an excellent application case for insurance. The blockchain can fully control and track each claim, while making the process transparent and automating the payment. Blockchain technology can improve risk modeling in the insurance field, break the current isolated nodes, and greatly reduce the occurrence of fraudulent claims by tracking the source of insured diamonds, paintings, houses, vehicles and other assets.

3. Supply Chain

Use Case: Trade Finance

The digital transformation of supply chains and trade volumes are important application opportunities for smart contracts and blockchain.

Current supply chains are complex, slow, and decentralized, involving parties all over the world who often do not trust each other (hence the need for a trusted third party, such as a bank or clearing house, to mediate). By automatically executing smart contracts on the blockchain, goods can be transferred without banks having to provide products like letters of credit, decentralization can greatly reduce costs and create a trusted network that ensures authenticity and product provenance.

4. Payment

Application Case: International Payment

Why do international transfers take days or longer? The global payments space is huge, but the process is slow, expensive, prone to errors, and not fully traceable (which ultimately leads to money laundering). The space needs a reshuffle, and blockchain offers a solution.

Just recently, news broke that Santander became one of the first banks to use blockchain in its newly launched payment app, which will allow consumers to make international payments within 24 hours and have them cleared the next day. This is just the first step, but blockchain could allow banks to eventually make payments in real time while reducing operational costs, human errors, and fraud.

Sigga Sigurdardottir

Sigga Sigurdardottir, head of consumer and innovation at Santander, said blockchain is key to future services. She said:

“We believe new blockchain technologies will play a transformative role in enabling us to achieve our goals and better serve consumers, adding value by creating more choice and convenience.”

5. Compliance

Use Case: KYC

Financial institutions around the world are responsible for complying with the rules and regulations of local regulators. Know Your Customer (KYC) is an important rule, but it is a very time-consuming process and the lack of technology to automatically verify the identity of consumers makes it difficult to carry out efficiently.

Blockchain technology can provide a single source of digital identity information, enabling seamless transfer of documents between banks and external agencies, while automating account opening, reducing resource consumption, lowering costs, and maintaining legally required data privacy.