Organizations across the globe have started exploring and investing in blockchain technologies realizing its potential and impact on businesses. The financial industry has been one of the early adopters of the blockchain. Financial institutes like corporate and retail banks, clearing houses are deploying blockchain in areas like payments, trade finance, and lending to benefit in time, cost and minimizing risk.
There has always been certain ambiguity when it comes to payments between two parties. The ambiguity persists till the very moment payment is credited to receivers account. The financial institution like banks, clearing houses, regulators have brought some kind of certainty and regularity in payments. However, they have reduced the speed of the entire payment process. And when the payment is across borders then the clearing and settlement could go on from days to weeks for the very reason of reconciling records on ledgers between intermediate houses. Blockchain by design streamlines payment process as the parties involved can view the same ledger that is updated through mutual consent and once updated is unassailable through cryptography. This makes it possible for banks and other financial institutes to make entire payment process faster and secure.
Trade finance is another area where blockchain is expected to bring true change. The involvement of many parties, approvals, process and documents for a single shipment makes trade finance a very complex process. Traditional trade finance practices include activities like lending, issuing letters of credit etc often takes weeks to complete a single transaction. The capital is held up all this while and numerous documents would be exchanged back and forth for reconciliation thus making the entire process slow and prone to errors. Having a digital and unassailable record like blockchain helps all the participants in trade view whereabouts of the product real time, thereby not only build trust amongst parties involved but also to improve efficiency by making approvals and handoffs process rapid, reduce documentation, save time and early or instant release of capital help up.
Apart from payments and trade finance, blockchain has its positive effects in the areas of smart contracts, automation, and compliance in the financial industry. Almost all the financial institutes are looking at blockchain as a disruptive technology which could change the way they operate in many areas and hence want to be an early adopter of the technology.
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