Blockchain technology is a way to a create a digital database of information on financial transactions that cannot be changed or corrupted. As such, blockchains are commonly seen as a way to deal with financial transactions without the input of a third party checking that the transaction has been approved. Supporters of blockchain tech have suggested that it is a more secure option due to the fact that it requires less or even no personal information from the individuals involved in the transaction.
Originally, this tech was used as a way to centralize record keeping, again without the need for a third party. However, it gained a lot of attention after it was used by the cryptocurrency industry. Cryptocurrencies like Bitcoin use Blockchain in a decentralized system.
Despite the increased attention for this industry, other business financial sectors have also found a use for the blockchain and incorporated it into their business model.
Banking And The Blockchain
Since a blockchain does not require a third party, advocates of the system believe that it could be a way to create a more effective and efficient banking process that is even more secure. Although, the main advantage for bankers is undoubtedly the cost. Simplifying the system for checking financial transactions would make the entire process a lot cheaper. This may be why the majority of banks are already testing the systems.
The development of this tech in banking widely varies. Some banks are attempting to decrease the number of components needed in a single transaction, tackling the root of the issue. Others are investing in tech startups or partnering with fintech businesses that use blockchain technology.
Many of the world’s biggest banks including Goldman Sachs, UBS and Morgan Stanley have published research on blockchain technology and their efforts to incorporate it into their systems. The majority of these banks have begun to patent their own blockchain technology.
Benefits For Banking
There are numerous reasons why blockchain technology is becoming a priority for banks across the world. We have already mentioned a key component, and that is the reduced cost. According to Santander, blockchains could save banks $20 billion annually.
As well as this, banks need to compete with fintechs that are offering some of the services that banks provide at cheaper costs and a more rapid speed, like international payments. As such, if banks want to keep their customers they have to explore more options. Furthermore, banks could use the blockchain to create a completely new business model that avoids the central structure, similar to its use in cyber currency and thus dramatically impact the current financial system.
Looking to the future of blockchains in banking there are a few predictions we can make. First, it is highly likely that the use of blockchains in banks will be highly specific and used to improve their businesses rather than a broader movement to reshape the entire system. Second, the blockchains will likely include a lower number of participants ensuring that it is a rapid process. Although for any of this to occur, we will need to see a tighter level of regulation on the blockchain systems than there is today.
Blockchain In The Insurance Industry
Blockchains have also become a key focus for the insurance industry. The crucial and most recent example of this would be Zurich. As part of a group of Europe’s largest insurers, Zurich has now launched the Blockchain Insurance Industry Initiative or ‘B3i.’ This initiative is designed to reshape the industry through a completely transparent record of data.
B3i has been in development for quite some time. In January 2017, investigations and research were conducted into how Blockchain and smart contracts could simplify and dramatically improve claims processes and reinsurance.
There are many aims of this type of initiative and ways in which blockchains could lead a dramatic evolution of the current insurance model. For instance, Smart Contracts are a way to translate legal wording into code and automate the process in a way that is both secure and cemented in the system. As such, the coding cannot be impacted by any one party.
As well as this, similar to the use of blockchains in banking, the system is being used to boost the efficiency of the current insurance platform. The Global Head Of Reinsurance has suggested that B3i could lead to a productivity gain of as much as thirty percent. The B3i is still in a beta testing phase at the current time of writing however it could go into production as early as 2018.
Benefits In The Insurance Industry
A key component of the insurance industry is the level of automation that blockchain technology could bring to the industry. With smart contracts, transparent data and blockchain tech combined the wait time between issues reinsurance can be greatly reduced. One example would be a cancelled flight. If a flight was cancelled, the insurance contract could be automatically resolved without any interference or delay.
Of course, one of the most exciting possibilities is that with a completely transparent international and cross-industry system in the future, issues with insurance fraud could be eliminated. Since everyone would be able to access the same data and information that could not be corrupted, insurance fraud should become a problem of the past. As well as this the blockchain database would mean that the system could be used to check case claims and indeed police reports.
In doing this, there would be a dramatic reduction in practical costs not just for the company but for the consumer. ABI estimates that fraud adds approximately sixty-five dollars onto each insurance contract so if fraud could be eliminated it would make the entire process a lot cheaper.
Furthermore, it would limit the costs of Know Your Customer or (KYC). Financial industries including insurance companies spend between sixty and five hundred million annually on KYC. However, with a blockchain system in place in the future that could be accessed by multiple organizations, this cost could be greatly reduced.
As such, it seems there is a great amount of development into using blockchain technology in the financial sector. Indeed, the implementation could lead to incredible benefits for both businesses and consumers, particularly if the maximum potential of this tech was reached and blockchains were fully established in the financial industry.