Question

What are the impact and challenges of blockchain equity crowdfunding for the financial sector and banking sector ?

Answer 1

Blockchain technology is transforming the financial services industry and creating opportunities for both new and established players. Blockchain is addressed as "the new internet" and is driving transformation for businesses across multiple sectors, particularly for financial & banking services. It has the potential to facilitate faster, cheaper, safer and more transparent financial transactions.Below mentioned are the impacts on banking & financial sector

a. Efficient Payments

Blockchain can majorly improve payment transparency, efficiency, trust and security as well as reduce costs. Payments can be processed in minutes or seconds, while currently, payments from one bank to the other can take around 3-4 days This will eliminate the need of middle & back office operations.

b. Transparency on KYC Process

Blockchain services such as KYC-chain are helping financial firms streamline KYC – a labour-intensive and error prone process – across their organisations, reducing the duplication of workload and increasing trust. Financial institutions across the world are responsible for complying and reporting on a number of requirements from their local regulator.Blockchain technology could provide a digital single source of ID and other information allowing for the seamless exchange of documents between banks and external agencies.

c. Ease of reconciliation

By providing complete remittance information to all parties in a transaction, distributed ledger technologyshould significantly reduce the time and manual effort involved in payment reconciliation.

d. Decreased Counterparty risk

When transactions are settled at that moment in time, it will remove a significant risk, that of the counterparty not being in a position to meet its obligations, which could be a substantial expense for financial institutions.

e. Capital Optimisation

it removes the need for a trusted intermediary and makes peer-to-peer transactions possible. If blockchain is applied in the financial services industry, it could render redundant the fee-charging intermediaries such as custodian banks (those that transfer money between different banks) or clearers (those vouching for counterparties credit positions).

Key Challenges of Block Chain

a. Cost of Initiation, Implementation, and Maintenance

The initial cost of implementing a blockchain system is very high. It requires large input regarding the software and hardware necessary for its initial launching. Small investment and banking companies may not meet such costs considering their financial status.

b. Modifications of Data

It also poses a problem with the modification of data. The banking and finance sector make regular modifications to the data they store, especially data involving a transaction. The Blockchain system, posing difficulties in such modifications, becomes more of a liability than an asset for the business.

c, Duration of Blockchain

There is no certainty that the transactions recorded in the system will last for a long time. The operations of the system are cryptic, therefore, there is no certainty of how long the transactions may last in the system. Most financial transactions require information about the past transactions and their future impact.

d. Interoperability

With an increasing number of players in an ever-expanding industry like blockchain, some worry that with so many different networks, no standard exists to allow them to interact with each other.

e.Criminal links

Since its launch, bitcoin has long been associated with the shadowy dealings of the black market and the dark web. Because this is the first interaction of the public with blockchain technology, this connection has persisted with bitcoin, altcoins, and the tech underlying it as well.

f, Privacy

The blockchain is designed to be publicly visible. All the information pertaining to a transaction is available for anyone to view. With the exception of privacy-centric coins, this is the same with many of the blockchains currently in existence.

While this feature may be important in some contexts, it becomes a liability if distributed ledgers are to be used in sensitive environments.