Financial services firms are already finding ways to take advantage of the benefits of blockchain technology. According to a market research report by BIS Research, blockchain technology is expected to witness traction in India especially, in the insurance, banking, and other areas related to financial services market.
The blockchain is an innovative technology which is an amalgamation of mathematics, cryptography and economics that creates and maintains a database of transactions involving multiple participants that does not require any third-party validation or reconciliation. In simple terms, blockchain is a ledger of transactions that builds a single, indisputable record of financial activities between two or more participants.
The ledger is updated when multiple, decentralised auditors validate a participant’s new entries by a consensus. The blockchain fulfils various banking functions such as storing, lending, moving, trading, reconciling and guaranteeing money through its consensus ledger system. The emergence of permission-less platforms and alternative currency such as bitcoins has been a significant factor aiding innovation in this domain. Acquiring loans against property will become simpler through the blockchain as money can be borrowed through digitally signed property.
Thus, the time period for disbursement of loans against collateral will reduce, leading to superior customer experience. Though at a relatively nascent stage in India, the blockchain technology has generated great interest among the major market players in the fintech sector and many of them are looking to invest in the technology on a domestic as well as global level.
In the next 4-5 years, the adoption of blockchain technology will enable companies in the financial market to reduce their operating costs and increase the overall efficiency. Moreover, adopting of the technology will further, bring in more transparency in the system. The key players in the market have formed a consortium in order to reap the maximum benefits with the use of blockchain technology.
According to co-author of the report, Gaurav Gaggar, “The use of blockchain technology is expected to impact certain segments of the financial market in a phased manner, impacting trade finance, digital identity management, KYC digital identity, private market trading, P2P payments and P2P loans from 2017 – 2020.”
Major companies are expected to invest heavily and contribute to the advancement of the technology through isolated internal experiments, partnerships with technology providers and industrial consortiums. However, despite the transformative potential of blockchain technology, more than 40% financial institutions remain skeptical about the practical implementation and viability of the technology and have adopted a ‘wait and see’ approach for the near future.
According to author Tushar Agarwal, “Trade finance is likely to be the biggest beneficiary of the blockchain technology as its potential use can help in reducing the paper-intensive, manual processes, and document sharing cost. Implementation of the technology will also reduce the trade finance gap, free-up the capital tied-up in the trade finance process, and result in savings of over $30 – $40 billion per year.”
The adoption of technology is expected to save financial institutions over $40 billion per year in infrastructure, IT, operational, third-party fee, and administrative personnel costs. Many Indian players have tested the usage of blockchain in the trade finance, cross-border payments, bill discounting, supply chain financing, loyalty and digital identity areas. A few Indian banks, business conglomerates, and stock exchange are among the pioneers for exploring blockchain in India.