March 20, 2018
The global financial system has been moving a trillion of dollars as well as serving millions of people a day. However, this enormous system still has lots of shortcoming and this leads to many problems such as higher cost due to fees and delays, redundant and onerous paperwork as well as fraud and crime. According to Alex and Don Tapscott, economic crime has impacted o 45% of financial intermediaries, such as payment networks, stock exchanges, and money transfer services, because of the limits of the financial system. That is the reason why the regulatory costs are still growing and becoming a top concern for bankers. Those costs will be added to the transaction fees for the consumers. So, how could blockchain development environment can solve the inefficient financial system?
Our enormous financial system is very cumbersome to transfer money. It may take days or even weeks to finish the transaction while we can send an email within few minutes. There are three main reasons that lead to an inefficient financial system. The current system is antiquated with a combination of paperwork and redundant process. Also, it’s centralized that makes it resistant to change and vulnerable to systems failures and attacks. The last reason is the exclusion which denies billions of people access to basic financial tools. And blockchain development environment can be the innovative solution for these problems (1).
Cost saving, and efficiency are the blockchain’s strength that attract the bank’s attention. Blockchain technology can help to deal with the rising cost for maintaining or replacing the ageing infrastructure and ensuring compliance with heavy regulatory burdens. Also, blockchain-based solutions could generate cost savings of up to $20 billion per year for banks to deal with increasing economic instability. Furthermore, the start-up fintech are using blockchain to offer financial service such as remittances and international payments with a low cost, greater speed and more user-friendly system than banks to customers. That’s why banks must start to build their own blockchain-based solutions to compete with these up-and-comers. Moreover, blockchain can be used to circumvent central bodies or legacy infrastructure and potentially develop these systems to create brand new business models that disrupt the financial ecosystem (2).
Blockchain technology has many advantages for the financial service industry such as real-time review, transparent factoring, disintermediation, reduced counterparty risk, decentralized contract execution, proof of ownership, automated settlement and reduce transaction fees and regulatory transparency. And trade financing, where the financial institutions provide credit facilities to guarantee the exchange of goods, can operate leveraging a Blockchain development enviroment based infrastructure to drive efficiencies, reduce cost base and open new revenue opportunities through these advantages (3). IBM Blockchain also explains that blockchain allows increased visibility and trust across the participants while helping reduce the delay costs and manual effort with smart contract. For example, IBM Blockchain, IBM API Connect and IBM MQ support the digital trade chain to provide efficiency, transparency and security enabling expansion of trade financing to a growing network of small and medium business (4).
Clearing and Settlement:
Clearing and settlement is the process where a transaction is executed. For example, party A has received the funds in their account and party B has obtained the ownership of the goods. Most of all, this process concerns the settlement of transactions concluded in a regulated market or on a multilateral trading facility. However, transactions concluded between two parties outside the trading platforms also must be settle (5).
The exciting key about clearing and settlement is that the central authorities govern the current industry. There is a question “How can blockchain development environment which is decentralized, work in a centralized operation?”. And the answer is because the implementation runs as permissioned by this central entity above the market convenience. The banks are now working with blockchain orientation to bring the global change of easy transfer and transaction (6). It’s not a problem of replacing these infrastructures but helping them adapt to conform with new standards.
In conclusion, Blockchain will help to reduce the number of middlemen and costs while increasing security as well as increase the velocity of money, which will increase cash flow and capital investments. There are so many blockchain use cases in financial services industry that are researched and developed to dramatically reduce inefficiencies in the financial marketplace.
Last but not least, applying blockchain technology to fintech brings huge opportunities which will the to disrupt many aspects in finance industry such as secured recording of the ownership of financial securities, improved reporting and monitoring through greater transparency and information sharing, etc. Even though there are many obstacles that blockchain must face before its massive adoption, the potential of blockchain is undeniable. It is expected to change the whole structure of finance industry.
Infinity Blockchain Labs is a visionary R&D company engaged in intermediary and RegTech services employing blockchain technology. We focus on forming alliances with established businesses and regulatory institutions across various industries, as well as providing collaborative incubation for early stage blockchain projects.
IBL aspires to empower Vietnam to become a global leader in blockchain development environment and therefore are committed to sharing information to nurture a passionate, educated blockchain community. One of the ways we maintain our role as ecosystem pioneer is by helping create educated blockchain enthusiasts. We are committed to sharing information and resources to help Vietnam become a blockchain hub through conferences, courses, contests, alliances, workshops, speaking engagements and incubations. Information regarding topics like hard forks helps people become more familiar with key blockchain concepts and thus able to adopt the technology.
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