Banking, Financial Services and Insurance sector (BFSI) were the first to get disrupted by the wave of blockchain technology and cryptocurrency trading. Blockchain technology is a decentralized ledger which provides immutability of data, transparent yet secure information storage and anonymity of participants of the system. These features first disrupted the financial industry because it was needed there the most. Every year many financial and information related frauds occur which affects ordinary citizens and their ability to earn income. The need for a decentralized system to trade led pseudonym Satoshi Nakamoto and other community members to develop and increase use of blockchain platform. But still this need further can benefit the BFSI sector in the following ways:
- Seamless KYC Process
The purpose of Know Your Customer in the BFSI sector is to prevent criminal and money laundering actions. By collecting necessary identity information of individual who does the monetary transaction, he/she can be tracked when found guilty. This KYC process is time-consuming and costly as every year, collecting information adds to a country’s overall cost. Moreover, a collection of information creates duplication of that KYC information. The blockchain based system which collects KYC information can reduce these drawbacks. As we know, information on blockchain remains immutable and forever so the reverifying KYC information only by checking an individual’s KYC block will be required and duplications are avoided. Moreover, if a block to update the data can be added to blockchain while connecting the same with the previous block and keeps a KYC history of an individual.
Popular smart contract development is on Ethereum based which offers smart contract development for mass as well as for private transactions.
- Transparent And Easy Payments
Through blockchain development, many other programs are possible now, one of them is smart contract development. A smart contract is a contract without a third party. Two or more participants anonymous or not, agree to execute a deal on blockchain platform and deploys terms of agreement on blockchain which automatically runs the approval from both sides. A smart contract is useful for various banking and related transactions payments such as installments, interest payments, premium payments, etc. One of the most popular smart contract development is on Ethereum based which offers smart contract development for mass as well as for private transactions.
- Securities Market
Securities exchange market players require to monitor every small transaction made as there are already many scams and money laundering activities by enabling an exchange market based on blockchain records every transaction and collects required information from the smart contract only. Moreover, from the popularity of cryptocurrencies and Initial Coin offering. Securities Coin Offering are in use now which offers features of traditional security to trade and benefits of a blockchain to keep information secure.
- No Duplication Of Transactions
Every time an inter-banking transaction occurs, two banks record the same transaction making a duplication. Also, an overseas trade is always delayed due to delay in the transaction being reflected in the system. Both of these problems add to organizational cost and time. By applying blockchain application or system on these banks and other institutions, these duplications are eliminated. Blockchain records every transaction details, and it automatically sends to nodes or participants of the blockchain. Moreover, the ledger is with every node which is verified with every other node’s accounting data. The blockchain removes the need to verify and re-verifying the ledger information.
Every year, 45% of the BFSI sector faces frauds and money laundering activities
- Reduction In Frauds
Every year, 45% of the BFSI sector faces frauds and money laundering activities which not only harms the economy but it also harms ordinary people’s income. It is due to regulatory authorities’ systems are vulnerable to outside threats like hackers and terrorism. Many steps were taken to prevent these activities, but it is still are in effect. Blockchain technology might not be able to eradicate every fraud, but it sure can provide solutions to reduce as well as track responsible parties for financial scams. By integrating DBMS (DataBase Management System) with blockchain technology can enable a transparent and secure system to the BFSI sector. The benefits mentioned above of blockchain development in BFSI sector might get affected with changing and improving laws and regulations regarding the related programs of blockchain such as ICO token, smart contract development, digital wallet development, and cryptocurrency development and trading.