One of the first industry which was disrupted through blockchain technology was BFSI. Banking, financial services, securities, and insurance companies were disrupted in terms of how various information related to the financial transaction is being stored, verified and used. As we know many financial frauds occur in the economy resulting in money laundering activities and other scams. But through blockchain technology, those frauds and scams can be reduced to a great extent.
The first revolution the Blockchain development services are bringing is in BFSI sector. Especially in terms of KYC information of general citizens. The advantages of applying Blockchain in BFSI sector are as follows:
1. Reducing Financial Frauds
Applying blockchain technology to banks and other related sectors can reduce financial frauds to a great extent. According to a study, 45 % of transactions done in the BFSI sector every year includes frauds or manipulation in data for a personal gain. The DBMS system which stores data and used by players of this industry are all based on a central authority and can be manipulated easily. By replacing that system with a blockchain enabled DBMS can reduce this kind of manipulations as blockchain only requires support and maintenance, there is no central authority. Moreover, this DBMS are vulnerable to hackers and there are many issuers in cyber securities. But a blockchain enabled system with features such as immutability of data, transparent data, and decentralized authority almost eliminate those issues and secures necessary information.
2. Know Your Customer (KYC)
The KYC information is collected for the purpose of using the public’s general information to identify, validate and prove the authenticity of that particular person. Moreover, these data are used at various levels of a sector. For example, in the BFSI sector, banks provide KYC data to insurance companies and government authorities for other uses. But in this process, final customers i. e. public gets tedious the most. Moreover, every year KYC process costs too much of total spending by a country and time-consuming. By using blockchain to collect KYC data, the tasks of collecting data can be reduced to a great extent. The data can be updated by adding blocks and past data can be obtained without a hassle. And this information can be shared throughout the nodes, and these nodes can be other players of industry such as insurance, financial service etc.
3. Various Payments
Blockchain technology offers smart contract development. A smart contract is a computerized contract between two or more parties. The terms of contracts are coded in the blockchain platform and the deal is executed through the simultaneous exchange. For banking and financial services sector where thousands of financial and non-financial transactions take place in a day, a smart contract can be useful. A smart contract is built based on blockchain hence, details stored cannot be altered and available to participants. Various payments can be less costly and less time-consuming. Ethereum is a blockchain developed and offers easy smart contract development for mass. It also offers smart contract development for a specific use between two parties. These smart contracts are typically being used for cryptocurrency exchange but it holds a high potential in every sector of the world’s economy.
4. Trading Market
Stock markets of various countries face many scams and money laundering activities. These market can reduce those activities to a great extent through blockchain based systems. As said earlier, the risk associated with payments and exchange can be simplified through smart contracts. Another major tool offered by blockchain technology which has disrupted BFSI sector of every country is Initial Coin Offering (ICO). It is the future of the financial services market to raise funds and to be invested in. Major countries have also implied regulations and encourage the ICO development. Many of the countries also provide blockchain development services overseas.
5. Reduced Duplication
One of the most tedious, costly, and time-consuming task for a bank or a financial institution is collecting KYC information. Collecting, verifying and re-verifying each consumer’s information cost a lot increasing data processing cost of an institution. During an interbank transaction, all the transactions are done manually while confirming with exchanging bank, making duplication of the transaction. This duplicated error takes time to re-correct but with a blockchain enabled KYC information system and transaction system, duplication can be reduced and re-verification of information can be eliminated.
These benefits can be affected based on laws and regulations implemented and being implement by various countries. As blockchain technology and programmes offered by it are yet to be legalized in developing countries.
We hope you have found this article informative and interesting. For more information or queries visit at blockchaindevelopments.io and know more about this technology. You can also contact us or send us an email at firstname.lastname@example.org.