Some could argue that over the past few decades, financial services has completely transformed itself.
From relying on physically walking into a bank to withdraw cash to snapping a photo of a check for deposits, technology has played a great part in the way financial transactions have evolved within the last thirty years.
The latest technological finance breakthrough, blockchain technology, has been a slow burn over the past eight years, since 2009 when it popped up as the power behind bitcoins. With the various advances in technology, many issues have come to light from the use of blockchain. In addition to quicker transactions and a higher rate of quality data, many in the finance world have shown concerns for its ability to truly secure monetary interactions.
While blockchain technology is meant to be the ultimate way to transfer the cryptocurrency of bitcoin, there have been reports within the past year on at least two separate occasions where $72 million and $55 million were stolen from large entities.
In an attempt to highlight how hackers were able to infiltrate and successfully take bitcoins without permission, Microsoft Azure’s Chief Technology Officer, who also serves as an overseer of the company’s blockchain-as-a-service offering, Mark Russinovich, shared his thoughts with American Banker: “Blockchain isn’t a panacea for security concerns people have. The high-profile breaches of blockchain exchanges show that blockchain participants and their access to the blockchain represent a point of concern, and anyplace where there’s aggregation happening, like an exchange, could be compromised by a security incident.”
Even though there have been a few instances where blockchain technology has not been 100 percent safe, it still seems to be moving forward with great momentum. In a recent study professional services company Accenture did with benchmark provider McLagan on the blockchain technology’s operational impact on businesses, it was found that there was quite a large amount of savings that could be reached for financial institutions. The findings concluded that, if implemented, blockchain technology could result in the following: 70 percent savings on central finance reporting; 30-50 percent potential savings on compliance; 50 percent potential savings on central operations and 50 percent potential savings on business operations.
Particularly, Accenture had another study earlier this year touting that investment banks could save $8 million to $12 billion by the year 2025 (just 7.5 years away) if blockchain technology were implemented.
MIT researchers are looking at the way in which the technology is already having an impact, saying blockchain will do for the finance world what the internet did for the media industry. In regards to how blockchain media could help change financial services, these researchers shared the following:
“The existing financial system is very complex at the moment, and that complexity creates risk. A new decentralized financial system made possible with cryptocurrencies could be much simpler by removing layers of intermediation. It could help insure against risk and, by moving money in different ways, could open up the possibility for different types of financial products. Cryptocurrencies could open up the financial system to people who are currently excluded, lower barriers to entry and enable greater competition. Regulators could remake the financial system by rethinking the best way to achieve policy goals, without diluting standards. We could also have an opportunity to reduce systemic risk: Like users, regulators suffer from opacity. Research shows that making the system more transparent reduces intermediation chains and costs to users of the financial system.”
According to Bitcoin Magazine, blockchain technology is set to disrupt the financial services industry in the following ways: cross-border money transfers; securities settlement and clearing; trade finance and supply chain; insurance and KYC/AML.
Through the use and advancement of blockchain technology, the financial industry will likely continue its refinement of using it within its system. Given the difficulties that may arise from various organizations using it or choosing not to, the ability to expedite payments for consumers and streamline internal operations just may outweigh the associated risks.