Implications of blockchain on asset management in financial institutions
There are two major reasons why Blockchain technology implementation on asset management is on demand. Firstly, the technology has huge potential to transform the asset management value. Secondly, there is a huge opportunity due to its early stage scene. One of the reasons why financial institutes worldwide are adopting this digital ledger technology is because firms can reap potential rewards in the future.
Blockchain or chain of blocks
Blockchain is a multitude of technologies that helps in maintaining a digital transaction ledger, and is distributed to all individual users in the network. The ledger records all transactions one after the other in a chain of blocks.
All the network members can assess the ledger, review previous entries and record new ones. The ledger and transaction network doesn’t need any mediator i.e. a central authority.
Impact on financial institutions
The technology offers a transparent, cost-effective, reliable, traceable and speedy solution for banks and other financial intermediaries. Most importantly, it separates assets (e.g. Bitcoin) and technology (e.g Blockchain). It is, in fact, best suited for shared information environments or in situations where there’s a need for validation between two parties.
Everyone involved in this technology has identical copies of blocks. This makes information during a transaction, transparent & consistent. It thus eliminates the need for brokers/middlemen, providing benefits of cost and accuracy. Automated trade cycles can also be generated for convenience.
Blockchain introduces a wide range of validation mechanisms. This can highly impact a variety of transactions such as escrow arrangements; person to person wire transfers etc. International payments are also one of the major factors in delaying financial services. The process usually takes more than a day during bank hours. It generates significant banking costs.
Further, during a cross-border transaction, funds have to transit through several banks before reaching the final destination. This increases the risk of mistakes. The blockchain is a complete solution to settle all these challenges.
Smart contracts - Future of share trading
Smart Contracts are an electronic document to standardize the documentation needed for trading transactions. Its fields could be pre-filled, thus reducing delays and errors caused due to human intervention.
Poised to disrupt
From operations to business models, Blockchain is poised to disrupt the Financial Services Industry. While some institutions believe it to be an evolution of economic pattern, others are still experimenting on its viability. Some of these are mentioned below:
"Build a proof of concept, wholesale interbank payment system, using a distributed ledger" the project has been undertaken by Bank of Canada to study the implications of the technology in Financial Services.
Barclays used Corda Blockchain developed by a consortium of Citigroup and JP Morgan, to test their trade derivatives through Smart Contracts.
SanTander, a renowned UK bank, has become the first major bank in the country to facilitate global payments using Blockchain Technology. The user can now make the payments of an amount between £10 and £10,000 anytime throughout the day. The bank has created an app that confirms secure and timely payments using Touch ID.
Bond Settlement with HyperLedger SawTooth is one of the examples of asset management capability of the Blockchain technology.
Blockchain technology has a vast scope to flourish within the financial services sector. It can reduce frauds, remove the hassle to go through KYC with different organisations, mitigate operational errors at trading platforms & automate the insurance sector. So far, no standards have been set to control & protect Blockchain based systems. Most organisations are waiting for Blockchain ecosystem to develop and the changes it will unleash.