Numerous financial institutions are looking to unlock the power of blockchain technology. Not everyone will succeed in doing so, as most institutions aren’t too sure what to expect. When asked about their key desired regarding blockchain, the answers are all over the place.
The Rise of Innovative Technologies
The financial sector has put a very strong focus on cloud technologies over the past decade. This is in line with how other crucial industries reap the benefits of technological innovation. Ordering food and having it delivered to one’s doorstep seemed impossible 15 years ago. Today, it is a business-as–a-service accessible in virtually all developed countries.
Other crucial examples include the concept of sending money, communication, and dealing with sharing news and information with relatives. Every major aspect of everyday life has been altered through the rise of innovative technologies. The financial sector, while seeing some new challengers appear, has remained fairly unchanged ever since. That situation will need to change in the years ahead, and blockchain technology may be the catalyst.
Enter Blockchain Technology
Most people associate the concept of a blockchain with cryptocurrencies such as Bitcoin and Ethereum. It is equally possible to have the technology without those currencies, a concept often referred to as “enterprise blockchain”. Hundreds of companies around the world are exploring options in this particular segment, to varying degrees of success.
Financial institutions have also taken a liking to what these distributed ledgers bring to the table. It is due time for banks to become not only more efficient, but also reduce their overhead costs wherever possible. A lot of institutions are struggling to earn a profit in 2019. That will only make the focus on cost-cutting measures more apparent as time progresses.
The big “problem” associated with this technology is how it can make some financial institutions obsolete. A blockchain can give consumers more control over their finances. Banks have opposed that concept for some time now, and they will not relinquish control all that easily. At the same time, those institutions ignoring innovation will be the first ones to suffer the consequences. It is a very tough balancing act.
What do Banks Want?
Those institutions exploring the boundaries of blockchain have different expectations and opinions. Three key needs can be identified at this point, as none of these are mutually exclusive. Most institutions want a solution to save costs, time, and risk. The first and second “desire” are very logical, but the latter one does raise some questions.
One could argue a blockchain removes the need for legacy payment systems. As the lines of communication between institutions enter the modern era, there is less chance of something going wrong. As such, the risk of dealing with payments is reduced significantly.
A distributed ledger can also decrease the need for labor-intensive and manual processes. Any undertaking involving human input carries a certain risk factor of its own. Automation is taking place in every sector, and it is a matter of time until the financial industry follows suit.
The Future of Finance
This current focus on blockchain in the finance sector only solves one part of the equation. Without crucial partnerships and solution providers, these efforts will not make a meaningful impact. The mechanisms to implement distributed ledgers in a prominent and commercially-viable manner have yet to be created. When that happens, the era of banking on blockchain can commence.