The banking and payments industry has remained rigid in terms of its operating business and financial models. Centralized money
supply, paper-intensive transactions, transactions facilitated by trusted third-parties, and multiple layers of authentication and verification still govern the current payments landscape. This exorbitantly increases the transaction cost and time, making some transactions unfeasible. The problem is tackled with blockchain technology as it records all transactions in an anonymous public ledger, allowing users to manipulate it securely without the involvement of a third party. It uses algorithms and miners to verify the transactions from multiple inputs and chains them together into a block using a cryptographic signature.
The question to ask is if blockchain technology can replace the traditional banking and financial systems. The majority of the esteemed banking institutions are already using blockchain technology for international transfers and payments. The following reasons compel us to think that this technology may well change the payments industry’s landscape:
Revolution in the Banking and Payments Sector
With the passage of time, blockchain is looking more likely to replace the current centralized business model of the financial services industry. Banks and financial institutions are looking for avenues to implement blockchain technology to shed off transaction costs, decrease transaction speed, eliminate multiple transactions and authorization levels, mitigate fraud by maintaining transparency, and decentralize the payment systems. The technology is capable of cutting out intermediaries and provide complete transparency with each transaction held in a digitally shared ledger.
Enforcement of Smart Contracts
Blockchain technology, being decentralized, could be used in smart contracts or self-executing digital contracts. By converting contracts into codes which are stored, replicated, and supervised in the blockchain network, lengthy paperwork, legal fees, and lawyer fees can be avoided altogether. Smart contracts are coded in such a way that meeting the terms of the contract automatically executes the payment in cryptocurrency, such as Bitcoin. Smart contracts can be implemented in situations ranging from insurance premiums to real estate, financial services, legal processes, and property law.
Asset Management Capabilities
Blockchain is being touted as a groundbreaking technology in the financial service industry as it can hasten asset registration and transfer ownership, improve transparency, reduce reconciliation error, and maintain record keeping accuracy. It is capable of facilitating both tangible and non-tangible asset management throughout its lifecycle stages such as procurement, registration, depreciation, maintenance, storage, and disposal.
Blockchain technology is bringing about a paradigm shift in the payments industry. As a result, numerous third-party payment vendors and financial service providers have started looking for ways to incorporate blockchain technology into their services to save millions of dollars in cost.
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