Realizing the Value of Blockchain in Financial Services
The year 2020 ushered in blockchain and its affiliates on a small-scale level. This occurrence may or may not be traced to the resulting realities of the COVID-19 pandemic and consequent lockdown, economic loss, and the general realization that blockchain is the future. However, the year 2021 further popularized the implementation and adoption of blockchain, especially in future-based financial industries.
What's the fuss about blockchain?
With recent developments in the fintech industry, one cannot deny the effect and impact that blockchain has had on financial services as a whole. The financial service industry has undergone noticeable changes, progressing in diverse ways.
Experts believe that blockchain has positively affected the ecosystem's growth speed and enabled trust among its key players. However, a lot of work still needs to be done before entirely singing the praises of the blockchain system.
Presently, most of the key players using blockchain in the financial service industry are tech-savvy and can predict certain eventualities to a large extent. The blockchain user experience needs to be adjusted to accommodate the not-so-tech-savvy people who will still buy into the idea of blockchain technology in the not too distant future. The entire process needs to be re-evaluated and verified as seamless to maximize its full potential.
What are the significant challenges?
The journey to a place where all the players in the digital finance field work together harmoniously has been a painstakingly long one; however, the pace has picked up, and it is finally gaining some traction.
However, there is also the underlying issue of accessing customer data and establishing a symbiotic relationship between industry players while ensuring that new and inexperienced blockchain technology users do not get excited about the latest happenings and developments. These are a few of the obvious challenges that the digital technology world faces.
What are some of the noticeable, valuable changes?
The idea behind blockchain technology is – to a considerable extent - centered on promoting and enabling trust among users. Fortunately, this is slowly becoming a reality as aspects in digital finance – like borrowing, lending, credit –have gradually emerged into something incredible over the past five years.
Many of these developments in blockchain technology have changed the way the world views finance, and it has added value to the financial service industry.
What are the likely expectations?
Crypto and blockchain is a trend that is here to stay. In the digital finance industry, expectations are high. With evident recorded progress made so far, it is assumed that in the not too distant future, blockchain technology would be generally accepted as a mainstream medium of carrying out financial transactions.
For instance, an integration process that has gone well for financial services is popularizing stable coins. With the introduction and adoption of stable coins into the financial services industry, easy remittance of funds has become a reality. Long, cumbersome payment processes have been greatly simplified and can now be completed in five minutes, easy peasy.
Another expectation for the blockchain and crypto future is the increased level of easy money movement. With the change in tide and money movement becoming more manageable and efficient, many protocols will be defied, requirements will be minimal, and the system will be as transparent as it is efficient.
The projected plan is a system where regulated financial institutions maintain their financial books and then reconcile them with other institutions’ books, arriving at a standard, uniform view and enabling easier blockchain transactions.
It has also been projected that the speed and efficiency of blockchain technology are going to accelerate in the coming years, particularly in about five to ten years. Interest rates are stable now, and as of March 2021, a five billion dollar interest rate has been recorded.
Another reasonable expectation is the close shave that may manifest, between blockchain technology users and traditional financial institutions, no thanks to the ‘cost-income ratio.’ Currently, in conventional finance, the cost-income ratio is somewhere around 40:60, a sharp contrast with that of blockchain technology which is at less than 10%.
Thankfully, as new challenges are overcome, lessons are learned, and efficiency can as well be shared and passed on between digital financial markets and traditional financial markets.
What are some of the mistakes financial services make as they adopt blockchain technology?
There are several things the financial services are doing and moves that may be detrimental to the progress of blockchain technology and the use of digital currency in today's world.
For instance, with the rebranding and reintroduction of Facebook as Meta, the idea of a digital universe - a Metaverse - has falsely led many people into assuming that the same technology can be applied and implemented in the crypto world. However, real crypto players know the truth. They are aware that attempting to imitate this technology and using it may be a waste of time, a deviation from real, pressing issues.
Instead of taking money movement and trying to recreate it in the decentralized blockchain technology, what financial institutions need to be focused on is the mental recognition and conscious realization that no one person or institute can entirely ‘own’ digital data or customers. Refusing to accept this reality instead of pushing for the recreation of the traditional finance system defeats the whole point of decentralization.
One other wrong move that financial services are making is implementing host-to-host connectivity and partnerships. Bilateral partnerships do not help and can be a distraction from what is essential. The focus should be on fixing the disconnects and limitations on digital financial services in risk management, leveraging, and credit management.
Another mistake financial services are making concerning the adoption and popularization of blockchain is the general lack of preparedness for what is to come. A flood of blockchain tech users is coming, and the traditional financial world is chasing after shadows and focusing on the wrong things instead of coming up with solutions and ideas on accommodating the incoming crowd. Crypto is not going anywhere, and the sooner the financial service world accepts and adjusts to that, the better for everyone.
How does regulation fit into the picture?
On the issue of regulation, the rules vary depending on the country. For instance, a country like China is very hostile to the idea of cryptocurrency, even though they have their Chinese coins. In some countries like Nigeria, where the government has made the sale and purchase of cryptocurrency illegal, it becomes more difficult for native crypto investors and users to carry out transactions seamlessly.
Countries like the US and Singapore, to some extent, have clarity on regulation, and transactions are better completed.
However, of all these countries, the one with the most effective regulation model remains undecided.
With the rate at which tech is moving, the salient question about regulation policies is, ‘Can the regulators keep up with speed?’ Unlike traditional financial services, blockchain and digital finance companies are challenging to trace and pinpoint a particular geographical location. It is all digital, so how can the regulators keep up with this tech and hold people responsible for whatever?
The intelligent thing for regulators is to answer people's questions concerning how regulation can tackle real issues like scams and fraud. However, we can appraise regulators for a job well done so far. Although regulation restricts many things, with innovation and bright ideas popping everywhere, regulation can be a catalyst for positive future change.
Financial service providers need to focus on onboarding upcoming digital finance institutions and intimate them with the goings-on in the industry. The consumers should also be immensely educated and carried along for faster and better results. All hands should be on deck, working together to achieve a common goal.
So how are businesses grown when there is no customer relationship?
The argument that blockchain technology all boils down to a transaction and nothing else has been going on for a while. It begs the question, ‘Since there is no customer relationship, how do these businesses bloom?’ In response to that, it is essential to note that blockchain technology does not require a customer relationship. It does not have to be present, as that is not what the concept is about.
It focuses on the unique technology that allows data to easily travel with its user, not tied down to a specific place or industry. In the real sense of things, providers should not be so overrated; instead, information should be made portable. This portability makes risk management an easy task, both for the customer and the institution.
Financial service providers need to bury the notion that a wallet provider must-see and access all of one’s data. Crypto is essentially a negation of this traditional idea of a company owning a customer. One can even say crypto is a sort of retaliation to this norm.
At the moment, so many banks and companies are making moves and working to cater to the needs of the average inexperienced customer who is unfamiliar with crypto rules and regulations. This development will serve as a form of merger, bringing traditional financing and digital financing together so that issues like the lack of customer relationships in blockchain technology can become a thing of the past.
What happens if something fails?
Since there is no relationship and no one can be held accountable, what happens? How do experts see this evolving? Well, in most blockchain transaction processes, the token's price validates the protocol's efficacy, minimizing collateral damage.
Technology makes it possible for digital finance to be less definite so that lost funds can be found based on customer preferences. Speed of computing will also soon be a thing of the past, thanks to industry research and wallet solutions. With the advent of companies who will bring answers, the future of digital finance and digital currency is in safe hands.