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Banking and financial services
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Blockchain enables true digitalization

The digitalization and automation of banking and financial services promises to improve efficiencies, reduce costs and risks, unleash the benefits of coordination, and unlock use cases that were previously unachievable. However, efforts to digitize banking and financial services over the last 20 years have been hampered by legacy IT systems, which suffer from weaknesses that derive from insufficient security and lack of interoperability.

Broadly speaking, blockchain enables the digitization of financial services by offering a more secure, transparent, and open data management system that also has the capacity to ensure confidentiality and secrecy where needed. 

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Blockchain-based systems improve upon legacy systems in four key aspects

Security

Legacy systems
Single point of failure increases security risk for data. This limits the products and services financial service providers can offer in-house while forcing them to rely on data intermediaries and inefficient monopolistic utilities.

Systems built on blockchain
Deployment of financial information on distributed consensus-based architecture vastly improves security. This increases the products and services that can be offered while limiting service providers’ reliance on intermediaries and utilities.

Transparency

Legacy systems
Stakeholders are forced to rely on a centralized source of truth. The resulting lack of trust limits the ability for participants to collaborate.

Systems built on blockchain
Network participants agree on standards, protocols, and processes, then operate using a shared source of truth. Participants can more easily form business networks and benefit from coordination. Auditing and reporting is strengthened and simplified, making it possible to automate compliance.

Privacy

Legacy systems
Legacy data sharing tools mean information can only be securely shared point-to-point between participants. This hampers the growth of business networks.

Systems built on blockchain
Granular read/write permissions can easily be defined for individual participants in a network. The ability to maintain confidentiality where needed while allowing access where permitted means coordination can be achieved amongst a wide network of participants.

Visibility

Legacy systems
Centralized data pools make it difficult to share data amongst wide and disparate stakeholders. This limits the growth of business networks and the ability for participants to coordinate.

Systems built on blockchain
A shared version of the truth promotes the growth of business networks and enables smooth coordination between participants.

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Additional features of systems built on blockchain and their finance-related implications

Programmability

Deterministic smart contracts allow for the automation of business logic. This improves efficiency and reduces costs while also increasing transparency and trust amongst participants. In the context of finance, programmability enables incentive-driven business logic and automated or “baked in” compliance.

Immutable asset history

An immutable record of the provenance of digital assets supports automated auditing and reporting. This makes it easier to achieve regulatory compliance.

Peer to peer transactions

Reducing the number of intermediaries to transactions streamlines processes and lowers fees. The possibility of real-time settlement unlocks new use cases.

Tokenization

Securities in digital form have a high level of customization potential and can be issued rapidly and at lower cost. Fractionalization of assets enables loan syndication and supports increased liquidity in secondary markets. Learn more about asset tokenization here.

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