But a number of banks are now experimenting with issuing bonds on blockchains. This makes financial sense. The beauty of blockchain is its automation and the redundancy of the middleman. Use of blockchain cuts down the number of intermediaries involved in the transactional process for issuing financial instruments. The European Investment Bank is already showing its confidence in blockchain. But when it comes to day-to-day transactions, banks so far have moved little. But they have reason to be worried.
If blockchain technology becomes mainstream, the impact will be on all of this:. The answer is to grab its advantages to introduce a new level of transparency and security, significantly reduce complexity and abandon redundant elements of current infrastructure. Thanks to their deep understanding of end users' needs, financial institutions are in the right place to embrace the opportunities of blockchain and to benefit from its new transactional paradigm and its cost saving potential.
But they need to act fast. Because the only way is forward, before the Fintechs step forward …. We respect your privacy, by clicking 'Subscribe' you will receive our e-newsletter, including information on Podcasts, Webinars, event discounts, online learning opportunities and agree to our User Agreement. You have the right to object. For further information on how we process and monitor your personal data click here. Blocks also record transactions in a similar way. Blockchain technology has the ability to digitally note the entire cycle of transactions, time-stamp them and record them chronologically.
Having an accurate and precise record of every transaction is essential for the banking and accounting industries. By recording the transactions automatically, blockchain technology significantly improves the efficiency of the process and reduces the risk of anomalies. Blockchain technology is decentralized, which means no one can access the blocks and alter them. Every single transaction is recorded on a unique node that cannot be tampered with at any point. This makes every record extremely secure.
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Other blogs had similar screaming headlines. I wrote this article three years ago on May 04, when Blockchain and Fintechs finally seemed to be gaining traction in filling the gaps left by traditional banks — and surprised that we are still where we are even today. Even though cryptocurrencies such as bitcoin tend to steal the limelight, it is their underlying blockchain technology that is proving to be of practical benefit.
This technology , which goes beyond the financial application, is expected to disrupt global supply chains by boosting transaction speed across borders and improving transparency. Essentially, the blockchain is a shared virtual public ledger where encrypted transactions are confirmed by outside parties.
It is this technology that Fintechs are leveraging to disrupt the traditional banks. Here in Nigeria, blockchain can help to unlock the immense capital locked in Land Assets that are not enumerated because of an antiquated system of land administrated, which is very ripe for disruption.
The most disruptive application of Blockchain Technology, however, is in the Financial Sector; and this will form the focus of my discourse. The consistent complaint about banks has reached a crescendo in recent years. Is this justified? After centuries of conservatism in receiving deposits and making loans, there are two main issues stirring the yearning for change:. They have carried on as protected monopolies with no serious challenge or competition, resulting in very little innovation over the decades.
The biggest threat to the banks has been precisely their seeming success. Centuries of relatively significant higher returns, even during economic downturns that adversely affect the real sectors, has engendered an attitude of invincibility and pomposity, characterized by a loss of touch with their customers. The promise of Fintech is great. It is shaking up a stodgy banking system and helping to build a more efficient one, especially for consumers and small businesses.
For years, emerging economies have looked up to developed countries for ideas about how to manage their financial systems. When it comes to Fintech though, the rest of the world will be studying the experience of the emerging markets, embodied by the widely successful MPESA mobile money system, championed by Safaricom in Kenya. Similar applications have metamorphosed across Africa, and Mobile Money services are today generating 6. Take, for instance, Diamond bank with 7m accounts after 23 years was able to add an additional 6m accounts in just one year after the launch of the Diamond Yello Account in collaboration with CWG and MTN.
It is by far the biggest market for digital payments, accounting for half of the global market, according to the Economist Magazine. Today, digital payments account for nearly two-thirds of non-cash payments in China, far surpassing debit and credit cards. Peer-to-Peer P2P lenders in China grew from to over 3, in , and P2P loans increased fold from 30b yuan in to b yuan in This shows what is possible in Nigeria.
There are indeed five major forces at play here:. Customers are the most significant force and represented by the outermost sector of the concentric circles. As they tend more towards a preference for digital currencies, the Fintechs will tend to assume a more prominent role in the new face of banking, and the Regulatory regime will inadvertently tend towards the Communication Commissions under whose purview the Fintechs fall.
The face of banking will thus be more of the same, and the regulatory authority will continue to be Central Banks. Between these two positions may be many variants, depending on the appetite and preferences of customers, and the pace at which they are willing to embrace change. Fintechs are not the only ones challenging traditional banks for turf. Retailers are also jumping into the financial services fray.
For instance, Amazon has launched Amazon Cash, a way to shop its site without a bank card. Google is also rolling out a new integration on mobile called Google Tez, which allows audio QR Codes and thus opens the door for more basic phones other than smartphones. In most emerging markets and developing countries, the current formal financial system only reaches a minority of the working-age adult population. Smallholder farmers, self-employed households, and micro-entrepreneurs have to rely on the age-old informal financial mechanisms such as rotating savings clubs Isusu or Ajoo.
These mechanisms can be unreliable and very expensive. In Nigeria for instance In sharp contrast, mobile phone penetration is very high at The digitization of retail payment systems and financial services has become an important economic development priority.
It offers the prospect of reaching far more people at far lower costs with the broader range of financial services they need to build resilience and capture opportunities. This speaks to inclusiveness. Digital financial instruments may thus be tailored to investor demands, expanding the market for investors, decreasing costs for issuers, and reducing counterparty risk. Over the last five years, the technology has matured for enterprise-grade use demonstrating the following benefits:.
Ethereum specifically has already demonstrated disruptive economics, creating over 10x cost advantages against incumbent technologies. Financial institutions acknowledge that distributed ledger technology will save billions of dollars for banks and major financial institutions over the next decade.
The digitization of financial instruments — comprising digital assets, smart contracts and programmable money — takes the benefits of blockchain further by forging unprecedented levels of connectivity and programmability between products, services, assets and holdings. These digitized instruments will redefine the processes of commercial and financial markets, creating a new paradigm where value is brought at every touch point.
Digital financial instruments offer the following business benefits:. Together, these benefits result in more accountable transparent governance systems, more efficient business models, improved incentive alignment between stakeholders, greater liquidity, lower costs of capital, reduced counterparty risk, access to a broader investor and capital base, and access to all other digital financial instruments. ConsenSys Codefi is the blockchain application suite powering the next evolution of global commerce and finance.
It is built to digitize assets and financial instruments, launch decentralized networks, optimize business processes, and deploy production-ready blockchain solutions. Capital markets refers to the pairing of issuers with demand for capital, to investors with corresponding risk and return profiles. Whether issuers be entrepreneurs, startups or large organizations, the process of raising capital can be challenging.
Firms face increasingly stringent regulations, longer times to get to market, volatility from interest rates and liquidity risk. Particularly in emerging markets, they must navigate the lack of rigorous monitoring, thorough regulation and sufficient market infrastructure for issuing, settlement, clearing, and trading. Blockchain offers multiple benefits for several capital market use cases:. Venture capital firms, private equity firms, real estate funds, and specialty markets are facing demands to improve liability risk management, adapt more dynamic decision-making structures, and address the increasing complexity of ever-changing regulations.
Blockchain can effectively streamline asset and stakeholder management. It allows:. Codefi Assets allows asset managers to create, issue, and manage the lifecycle of digital assets, associated markets, and digital financial instruments on public or permissioned blockchain networks. Insight Report.
Learn More. Global payments and remittances today are executed by a number of intermediaries that exact tolls for their service. It takes 2 to 7 days and costs a global average of 6. Blockchain can streamline payment and remittance processes, reducing settlement times and significantly reducing costs.
Blockchain for Payments. Project i2i is an Enterprise Ethereum payment network built with Unionbank of the Philippines to integrate rural banks into the domestic financial system, enabling more accessible and efficient domestic transactions for local citizens. Core banking comprises of transaction, loan, mortgage, and payment services.
Many of these services depend on legacy processes of execution. For example, between information verification, credit scoring, loan processing and distribution of funds — it takes 30 to 60 days for individuals to secure a mortgage, and 60 to 90 days for small or medium enterprises to secure a business loan. Blockchain can streamline banking and lending services, reducing counterparty risk, and decreasing issuance and settlement times.
Trade finance refers to the infrastructure, processes and funding that support international trade supply chains. The industry continues to rely on paper-based processes that are susceptible to security vulnerabilities. Individual transactions can take as long as days in order to process letters of credit, verify documents, and establish trust among stakeholders. Blockchain can digitize the entire trade finance lifecycle with increased security and efficiency. It can enable more transparent governance, decreased processing times, lower capital requirements and reduced risks of fraud, human error, and overall counterparty risk.
Blockchain for Commodity Trade Finance. Property and casualty insurance claims are prone to fraud and claim assessments can extend long periods of time. Blockchain can securely streamline data verification, claims processing, and disbursement, reducing processing time significantly. Regulatory compliance has become increasingly important in the commerce and finance space. It is necessary in order to ensure that financial institutions respect laws, rules, and regulations applicable to their activities.
It is a huge challenge for firms to keep up with the pace and complexity of regulatory change — particularly when firms operate across borders and are thus exposed to multiple regulatory regimes. Blockchain offers these benefits:.