Is the world now giving way to the fourth industrial revolution? That seems to be undeniable as this revolution is right on its tracks heading into the superhighway led by the superstar blockchain technology. We are starting to witness a stream of bigtime traditional financial institutions turning from being hardline critics, fearful pessimists, to convinced converts who are now investing heavily to the tune of billions to turn their supply and service chains from paperwork to paperless, manual to auto, fiat to crypto, labor to robotics, and those lacking with counterparts AIs, APIs, and the Internet of Things. What more, the world is doing away with Finance and is more inclined to sit kneecap-to-kneecap with Fintech.
Let’s take a closer look.
What is Fintech?
The term Finance as we know it deals with everything about money management and the services surrounding it, is known as Financial services. Manual bookkeeping, to say the least, was Finance’s legacy system until the advent of modern technology accelerated processes and produced rapid results, thus, giving birth to FinTech, or Finance Technology. Technological advancement and innovations benefitted the financial sector the most with the fast-rising fintech development potentially reformatting reciprocal Consumer-to-Business (C2B, or B2C) interactions, including B2B.
What is Blockchain Technology?
Blockchain technology involves a digitized ledger of financial and economic transactions and values exchange directly between parties which cannot be changed or tampered with. The ledger is always updated every time a transaction is completed and is distributed to all users across the globe via unduplicable nodes. Its complex core cryptographic structure can make any unwarranted alteration easily tracked down. The decentralized Bitcoin Blockchain protocol provided the blueprint that made it possible for the incarnation of other independent blockchain networks, mainly digital currencies. Other sectors are now exploring possibilities of incorporating it into their industries such as healthcare, property records, supply chain stops, and even a political candidate’s votes.
A recent Deloitte survey of 1000 companies in 7 countries reflected a 34% blockchain integration into their systems, while 41% will be employing this remarkable invention within 6 to 12 months. About 40% of those surveyed earmarked a minimum of $5 million in blockchain investment for the incoming year.
Financial firms stand most to benefit from the values Internet has to offer. But dillydallying can come with a high price as fintech companies can have the ability to throw their traditional services into antiquity. Not that they have the power to overthrow but the cunning to make the incumbent obsolete is staring them in the eye.
Some financial operations of traditional financing institutions are visibly ripe for scrutiny and upgrade. But stagnant, snail-paced policy actions may be keeping significant changes at bay, as in the following:
1. Clearing and Settlement.
Keeping the loans and securities department alone has been giving investment firms a run for their money, going into billions of dollars. Realigning costs to blockchain technology structuring may yet see a lot of improvement in the efficiency of back-office set-ups which still do a lot of manual reconciliation and other bureaucracies that are grinding conventional services almost to a halt.
As if on cue, commercial financing agencies are flocking to see what the blockchain technology has in store for them with all the projects they are pressing on while painfully awaiting their central banks to move. Their R and Ds are venturing into creating their own digital currencies as alternatives to cut costs and save time in settlement of obligations. Central banks, meanwhile, are much still in the exploration stages of payments systems via the blockchain technology since the bitcoin and other digital currencies are posing some severe challenges in their hold to monetary policies. The World Economic Forum reports that 44 central banks are already scouting, researching, and experimenting with the blockchain technology. It is not far-fetched to think they are also coming up with their own tokenomics.
3. Verification of Identities.
Genuine identity of customers is a significant and vital component in the financial world, and their verification is a vast and heavy responsibility mainly to thresh out crooks and criminals from money laundering and money heists. Credibility and trust are at stake as financial agencies are trusted keepers of peoples’ money, among which regulators are holding them liable and accountable. Blockchain technology’s database of actively updating these identities could very well serve the purpose.
4. Trade Finance.
Bills of lading or letters of credit are so paper-based; it is still sent through fax or postal service around the world. Its antiquated operations include physical stamping on some pieces of paper, data on shipping goods require access by as many as 50 people considering shipping companies, customs, ports, freights, and insurance, and a day’s oil trip from one country to another need at least 7 days to process the paperwork. Blockchain technology’s disruption can very much become a welcoming and much-awaited development in this area. Automated smart contracts can finally eliminate paperwork and carbon footprints once and for all.
5. Syndicated Lending.
Another area to which blockchain technology is wanting is in syndicated loans, where the lender-and-borrower interaction is by fax and working days on average is about 3 weeks to even months. This system to work needs an ecosystem and a community of financial institution participants, along with the change in business processes.
Systems and controls obligations such as risk management, financial crime reduction control, security systems govern traditional financial institutions and covered with strict regulations. Delving right into some enticing blockchain technology solutions and new business models without testing procedures and robust designs can be dangerous at best without appropriate measures taken to regulate risky changes.
Blockchain-Driven Fintech Enters the Picture.
More traditional financial institutions are coming out into the open talking and started integrating blockchain technology into the mainframe of their operations. Systems and controls obligations such as risk management, financial crime reduction control, security systems govern these financial institutions and are aptly covered with strict regulations. Delving right into some enticing blockchain technology solutions and new business models without testing procedures and robust designs and without appropriate measures taken to regulate risky changes can be dangerous at best. This convergence can turn to be costly.
Fintech company start-ups are now specializing in the abovementioned services for the same reason, for less, but with calculated efficiency and effectiveness since their core is digital.
Some will hold, some will fail, but either way, companies in the financial landscape should involve themselves now in the thick of things experimenting with new concepts, familiarizing with new tools and instruments, and learning as they journey along with disruptive development which is well underway if they hope to survive the fourth revolution.
A Fintech company, Wallex is blockchain-based driven to the core, leading the way towards third-party elimination, operational cost and time reduction, asset custody trust, enhanced verification processing, and much, much more. Its entry into defined lines of financial services such as Asset Custody and Management allows it to be the only institution that can manage any type of asset or currency, be it fiat, digital, real estate, etc. without bank licenses, making it possible to open custody accounts- multiple deposit accounts per currency – or, multiple currency deposits per account. Its unwavering commitment to customer privacy and security follows strict anti-money laundering procedures and detailed person recognition processing. Its advanced analytics, specific segment offering, and other exciting new capabilities are Wallex’s high-quality, innovative solutions at a universal scale meant for unique customer experience across borders in the digitized era.