2023-9-29 00:53 |
In the fast-paced world of finance, recent innovations have largely focused on delivering sleek and convenient front-end consumer-facing experiences on web and mobile applications. However, behind the scenes, the middle and back-office operations of financial institutions have continued to rely on centralized infrastructure and expensive intermediaries to facilitate transactions.
In this article, we delve into the disruptive force that blockchain technology is becoming in the financial services industry. From revolutionizing stock trading to enabling peer-to-peer transactions, blockchain is reshaping the way financial services work, reducing costs, and enhancing transparency.
The Traditional Financial LandscapeOver the past few decades, the financial services sector has undergone a visible transformation at the front-end, providing consumers with user-friendly web and mobile interfaces, enabling more convenient interactions. But beneath the surface, the back-office operations have continued to leverage monolithic infrastructure and now-dated processes, particularly in the use of costly intermediaries to facilitate transactions.
Let’s explore the role of intermediaries in traditional financial transactions:
Credit Card Transactions: Swiping your card at a store like Home Depot sets off a chain reaction involving up to five entities, including your bank, Home Depot’s bank, the credit card company, and others. This results in an incremental cost, typically around 3% in credit card fees.Stock Trading: Consider the example of purchasing public stock shares through your brokerage firm. While your holdings may appear in your account shortly after purchase, the actual settlement process takes two days. Why? Behind the scenes, there’s a complex network of six to seven entities involved in the process of transacting the stock shares, and without blockchain, each entity plays a critical role in ensuring the transaction in accordance with the terms. Each of those entities introduces costs, delays, and settlement risks.HELOC Lending: Home Equity Line of Credit (HELOCs) are a common loan instrument used by U.S. homeowners to access their home equity. Traditionally speaking, the process of funding a HELOC requires 30–60 days. In the middle sit several intermediaries, some of which require in-person events, such as the home appraisal, which is commonly conducted by an independent appraiser, human underwriting review, title report from a title company, and an in-person closing with an independent notary. Each of those activities introduces costs, delays, and the risk of closure.Blockchain: Trust vs. TruthIn the blockchain and Web 3.0 era, two parties can engage in transactions without the need for intermediaries. As long as one party possesses the required asset and the other has what is desired, the transaction can settle instantly. This revolutionary shift hinges on the concept of “trust vs. truth.” Blockchain technology replaces the need for trust in intermediaries with the truth of transparent, tamper-proof transactions. As a result, bilateral transactions between unknown parties can occur without counterparty risk, marking a transformative moment for the financial services industry and enhancing the customer experience.
TradFi is Already Leveraging BlockchainProvenance Blockchain, a leading player in this space and part of the interchain ecosystem, has showcased the institutional adoption of blockchain technology. With over $8 billion in real-world financial assets currently locked on-chain, Provenance Blockchain has supported more than $15 billion in financial services transactions. It stands as the second-largest blockchain, following Ethereum, in terms of Total Value Locked (TVL).
Use Cases on Provenance Blockchain encompass a wide array of financial services, including digital money and banking, asset management, capital markets, lending, insurance, and receivables and trade finance. More than 70 financial institutions and fintechs are participating on Provenance Blockchain to enable these use cases.
One example of a use case that has already seen tremendous success on blockchain technology is the Home Equity Line of Credit (HELOC) product in the U.S. Mortgage and HELOC providers leveraging Provenance Blockchain and an end-to-end digital experience have drastically reduced the time from client application to client funding. Previously taking 30–60 days, this process now takes fewer than five days, saving 150 basis points (bps) per loan. These substantial savings not only provide a competitive edge for early blockchain adopters but also benefit both lenders and clients. This is the reason why institutions, including Guaranteed Rate, Movement Mortgage, Homepoint, and others are now digitally-native loans recorded on Provenance Blockchain.
Navigating Regulatory ChallengesWhile blockchain adoption faces regulatory challenges, particularly in the crypto space, traditional financial activities and securities regulations remain well-defined. Regardless of the technology used, these regulations are expected to be applied. In cases where regulatory clarity is lacking, pathways exist for engaging with regulators to ensure alignment and compliance.
Blockchain technology is revolutionizing the financial services industry. By eliminating intermediaries, enhancing transparency, and reducing costs, blockchain is ushering in a new era of efficiency and accessibility. Infrastructure like Provenance Blockchain, which is built with IBC and Cosmos SDK, exemplify the transformative potential of this technology, offering a glimpse into the future of finance where transactions settle instantly, financial services become more inclusive, and cost savings are passed on to clients. Blockchain isn’t merely a prediction any longer; it’s a reality, and financial institutions and fintech companies are already leveraging it to re-architect how financial services work.
The future of finance is here, and it’s blockchain-powered in the interchain ecosystem.
Recommended next article: Real-World Financial Assets Find Provenance
For more information on the Provenance Blockchain Network, please visit Provenance.io. To learn more about why Provenance Blockchain chose interchain and Cosmos SDKs, visit https://provenance.io/learn/posts/Built-With-Cosmos-SDKs/. Follow Provenance Blockchain on Twitter, Medium and LinkedIn to stay up to date on the latest.
Real-World Financial Assets Find Provenance
Modernizing Financial Services with Blockchain Technology was originally published in Interchain Ecosystem Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.
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