Last Updated on January 29, 2024
The financial transactions across global trade relationships need to be standardized. The website will assist traders in their bitcoin journey with the best trading tools, fast payouts, and phenomenal customer support. You may enhance your trading strategies by using a reliable trading platform like https://bitqs.io
However, in many cases, manual processes and multiple systems may be leveraged by people to manage the transactions; as a result, there is no single source of truth for how much value one party owes another. However, blockchain must gain wide acceptance within organizations and the development community to achieve a decentralized finance vision.
To do so requires simplifying complex business processes, building out industry-specific use cases that are easy to understand, and, most importantly, showing significant cost savings versus the status quo.
Traditional Banking Shortcomings:
In Fintech, the financial world is made up of many independent parties that work together to facilitate transactions between each other. For example, a buyer wants to make a transaction from a bank account that he has with one bank. The buyer will then go to his bank and ask them to transfer money to the destination bank account, which belongs to the supplier. However, an intermediary must be involved in this process (the bank) for the buyer and seller to do business together.
The banks manage their ledgers and reconcile them with each other later on to get an accurate record of how much money was transferred by people between the two parties. It means that banks can begin to manage their relationship more similarly to how they would manage other business relationships, such as buying and selling real estate, managing student loans, or handling payroll.
The typical practice of getting money into the bank account involves having someone process and send money from one institution to another without necessarily knowing who owns that money for what reason. It results in time-consuming delays, high costs, and an inefficient system of moving money between institutions.
Blockchain can help eliminate many of these issues by allowing institutions to track ownership and money transfer without the need for third parties. As a result, businesses can complete financial transactions without relying on banks as middlemen, resulting in fewer delays, fewer misinterpretations, and unnecessary fees.
Cost savings:
The cost savings associated with blockchain solutions is one of the most attractive aspects of any new technology that offers a degree of innovation. Blockchain technology is still new to the finance industry and has been around for less than a decade. For now, the technology is being used by people to help streamline banking processes and improve the security of digital transactions.
Areas where blockchain can disrupt centralized finance:
- Cross-border remittances:
Executing cross-border remittances is a highly complex process that involves various financial institutions, clearing houses, and correspondent banks. Such a process can take up to 2 days to complete and costs the sender up to 16% of the total value of the transaction. The complexity and length of time associated with international money transfers are because most centralized systems rely on intermediaries, such as correspondent banks, to facilitate the transfer of money between countries. Blockchain technology eliminates the need for correspondent banks by allowing all entities interested in a particular transaction to establish trust before executing it.
- Regulatory compliance:
Costs associated with regulatory compliance are incredibly high. Today, there is a lot of emphasis on reducing costs associated with regulatory compliance, and the need for regulation in the financial services industry is rising. Since it would be challenging to maintain accurate records across various central banks and regulators, blockchain technology alone can help eliminate costs for regulatory compliance.
Blockchain technology can help reduce costs associated with regulatory compliance by lowering the time and cost involved in inspecting documents, such as records from some centralized systems, to determine if any fraud or wrongdoing has occurred.
Blockchain technology can also help reduce processing times by replacing the need for third parties to manage documents and verify the information.
- Payments:
The emergence of new technologies that allow people to exchange money in virtual environments increases banking industry costs due to fraud and security breaches.
To complete financial transactions, many people must provide personal information and documents that companies can use as proof of identity. For example, some centralized systems ask people to provide identification and collateral if an account is frozen or suspended due to fraudulent activity. Blockchain technology offers much better identity management.
The cost savings associated with blockchain solutions is one of the most attractive aspects of any new technology that offers a degree of innovation. According to PwC, a professional services company, blockchain will result in $110 billion in cost savings by 2025.
