The Financial Services sector has for many years been faced with complex and costly processes, intermediaries and their own legacy and hierarchical systems which when put together result in increased costs, inefficiencies and processing time. The emergence and prominence of bitcoin and its underlying technology Blockchain with open source, real-time payments capabilities and without centralized regulatory authority has sparked the Financial Services industry into exploring how Blockchain technology might be applied to mainstream banking and insurance sectors.
The features of Blockchain technology such as the distributed shared public ledger, chained blocks, digitally signed transactions and Blockchains’ integrity algorithm have the potential to significantly transform the Financial Services landscape by improving the speed of transaction execution, reducing documentation with digital distribution and effecting significant cost reduction.
Blockchain technology goes further than just a distributed ledger. Another initiative gaining acceptance is Smart Contracts that use computer protocols to facilitate, verify, or enforce the negotiation or performance of a contract or that obviate the need for a contractual clause. Proponents of Smart Contracts claim that many kinds of contractual clauses may thus be made partially or fully self-executing, self-enforcing, or both. Smart Contracts aim to provide security superior to traditional contract law and reduce other transaction costs associated with contracting.
There are a number of challenges in bringing Blockchain technology to market in the Financial Services sector such as regulatory compliance, confidentiality, data protection, scalability etc. but the technology has got gravitas; many financial organisations, groups and technical organisations are actively involved in proof-of-concepts, pilot projects and protocol setting standards.
This paper explores the initiatives underway in the Financial Services sector, the challenges faced and the benefits of adopting Blockchain within a number of the business streams of the Banking and Insurance industries.