We’ve all heard blockchain is set to take over. But why does it matter? What makes blockchain such an incredibly innovative technology for the financial services industry?
Blockchain in a Nutshell
Think of it as a spreadsheet. A simple database, or in financial terms, an online ledger. Like the Internet, this ledger is an unowned communication layer between parties to record the movement of any asset from one owner to the next. Recording data transactions as sophisticated as a corporate bank merger or that of simply lending a coworker $5.
Due to its openness, blockchain ensures the integrity of each transaction, as the ledger is stored in a way that only those parties involved in the transaction can access or update the data. Alerting all involved to approve any updates/changes being made. This means there are fewer middlemen involved in the process and less lost in translation scenarios, ensuring asset accuracy. Blockchain can be used to virtually manage real estate, wealth management, finances – essentially anything of value, with limited risk.
Trends in financial
Today, the future of money is moving. The financial industry consists of both large scale and small scale financial institutions. In the past, large banks had extensive offerings that gave them a landslide competitive advantage, due to their abundance of capital to buy data centers and sizeable talent pool. Whereas the small banks suffered from their lack of man power and technology (lack of the legacy systems big banks have). Attracting talent to work for a large bank was simple. They had superior benefit packages, a widely recognized name, and larger payrolls to work in their favor. However, this was a challenge for small banks, as they typically got the large bank’s leftovers.
Once upon a time bigger was better, but not anymore, due to the emergence of blockchain and the Cloud. Sometime during the late 1990’s, early 2000’s the popularity of the Cloud came along with a seemingly convenient and secure substitute to laborious and expensive banking procedures. And large banks were faced with a decision to make. Either continue to pay for data centers to remain in-house or to deploy the Cloud and pay per compute model, if security permits.
Quite interestingly, small banks had a problem staying relevant due to the cost to compute and manage the expensive data center, but with blockchain technology and the Cloud, there’s no longer a need for data centers. What once gave the large banks the upper hand in the market is now their biggest burden, giving small banks an even playing field.
Creating the ‘great shift’ in the financial industry, blockchain has allowed for the automation of content, data, and the movement of assets to occur on the Cloud via their mobile device or at a bank. So, if customers could pick up the phone to move around money and the young generations are more comfortable online than in teller lines, where do you want to spend your time and money?
How it Effects Your Everyday Life
Buying a home is one of the biggest investments that people will make. And to date, there have been few technological advancements to improve and secure the process for the homebuyers, lenders and sellers. However, blockchain suggests a new way to buy and sell real estate. Traditionally, when purchasing a home, there are various levels of inspections a property must go through. The foundation guy goes in and checks it, followed by the roofing expert, the exterminator, and so forth. In short, everyone is asking for money. Undoubtedly, this third-party verification is important, but is it happening in the most effective way?
Let’s say after five years of closing on your home you decide to move. All those inspections would have to take place once again. But why? They were just done. As real estate transactions integrate with Blockchain technology, each property would have its own blockchain ID, tracking the characteristics of each transaction. This includes the inspection details, as well as various other housing records that a potential buyer or lender may need. The transparency blockchain provides lowers the cost of current and future transactions, lowers the time to close (saving banks) and makes the property appraisal quick and easy.
Transactions are conducted based on an agreement between the parties involved, stating the conditions of the transaction, or in blockchain terms a smart contract is created – a set of digital rules pertaining to the agreement. For example, the purchase of an appliance for your new home would be assigned to that block of the blockchain and include the product warranty information and terms of the transaction. In the past, you may not have been able to track the life of the warranty on your appliance and had to paid hefty prices for a third-party repairman to perform the maintenance.
With the digital wallet available from blockchain, when your warranty is approaching its expiration date, a notification is presented on your mobile device informing you that your warranty is running out, prompting you to take action on it. How much it costs to extend it, how to file a claim, and what your options are after the warranty is up.
Automated technology within the smart contracts allows the carrier to stay connected with the customer and their appliance for the life of the purchase. For instance, when the heater or air conditioner goes out, blockchain’s smart contract has the ability to notify the carrier of the glitch before you are even aware of a problem. Giving the carrier the opportunity to make a claim against the warranty and get a technician out there to fix it in no time. Opening the door for new business opportunities with the product carrier and removes the need for the expensive third-party repair man customers tend to call in a pinch. It’s a win, win for everyone.
Blockchain ties together people, institutions, partners, customers and suppliers. Great for you, me, the banks and the companies that have products/services on the other side of any transaction, with increased cost savings and overall efficiency. Given blockchain’s ability to facilitate more streamlined transactions in areas such as real estate, wealth management, and finances, it’s easy to begin to see how the technology is on track to revolutionize the entire financial services industry.
Jim Schulenberg, Market Development Executive – Financial Services