When most people think about blockchain, their first thought is of a cryptocurrency like Bitcoin. What is not always recognized is the threat that this technology has to be disruptive in the financial services industry.
The reason why it can be disruptive is because of the security it offers to any transaction. Blockchain provides a way to let an untrusted party come to an agreement or sign a contract in the state of a database. There is no need to use an intermediary because the ledger makes it possible to have specific financial services that receive verification from the technology’s transparency.
Global Banking is a $134 Trillion Industry
Blockchain technology, distributed ledgers, and cryptocurrency offer the potential to create massive disruptions in several ways for payments.
1. Clearance and Settlement
Distributed ledgers through blockchain can reduce operational costs. This option also brings us closer to the creation of real-time transactions between financial firms.
Initial Coin Offerings (ICOs) create a unique model of financing that can eliminate the barriers to capital that exist with traditional currency options.
3. Securities Trading
Blockchain gives us the opportunity to turn traditional stocks, bonds, or alternative assets into tokens. Then the value of the tokenization can be put into the public blockchains to create interoperable and efficient capital markets.
4. Faster Payments
The decentralized ledger facilitates faster payments and lower fees than what banks can provide because the need for a middleman disappears.
5. Credit and Loans
Blockchain removes the need for a gatekeeper in the credit industry. This technology makes it more secure to take out loans or borrow money in other ways. That means consumers can have access to lower interest rates on the financial products they need.
6. Trade Finance
Blockchain removes the paper-heavy bills and cumbersome lading process that exists in the trade finance industry. It creates a presence that is more secure and engenders trust among all trade parties around the world.
Why Is Blockchain so Disruptive?
There are trillions of dollars and other currencies traded around the world every day using a system of added fees and slow processing times.
Blockchain makes it possible to conduct transactions like that almost instantly. Banks like the idea of facilitating payments because it is so easy to make money that way. Cross-border transactions generate 40% of the worldwide transactional revenues.
When we improve our method of payments, then there is more capital remaining to benefit the economy. Even though financial services agencies will need to look for new ways to stay profitable, the innovation that blockchain inspires can open new avenues that wouldn’t be possible otherwise.
Disclaimer: The author of this text, Robin Trehan, has an Undergraduate degree in economics, Masters in international business and finance and MBA in electronic business. Trehan is Senior VP at Deltec International www.deltecbank.com. The views, thoughts, and opinions expressed in this text are solely the views of the author, and not necessarily reflecting the views of Deltec International Group, its subsidiaries and/or employees.
About Deltec Bank
Headquartered in The Bahamas, Deltec is an independent financial services group that delivers bespoke solutions to meet clients’ unique needs. The Deltec group of companies includes Deltec Bank & Trust Limited, Deltec Fund Services Limited, and Deltec Investment Advisers Limited, Deltec Securities Ltd. and Long Cay Captive Management.