Blockchain technology and the future of banking

Blockchain is undeniably an ingenious invention to create an impact on the Fintech landscape and has brought disruption to the financial industry.

But why is it important to understand the concept of Blockchain and the impact it may have on the finance sector? 

Nicholas Jones, senior manager of banking & financial services recruitment at Robert Walters Dubai, shares his insight.

Despite historically having been one of the most immune sectors to technological disruption, banking is now more focused around the introduction of technology to establish trust with their clients, following events such as the global financial crisis. 

Blockchain has become critical for banks to provide faster settlement to clients through efficient banking systems and processes. Why?

Blockchain provides a very high level of safety and security when it comes to exchanging data, information, and money. It also allows users to take advantage of the transparent network infrastructure along with low operational costs with the aid of decentralization. These characteristics make blockchain reliable, promising and in-demand solution for the banking and finance industry.

One of fintech’s main advantages, apart from its ability to be far more agile then its billion-dollar counterparts, is its ability to tackle highly regulated areas where banks fear to tread due to the possibility of billion-dollar fines. In the future, fintech companies and banks will be able to offer services with much less friction. Hence, processes such as equity settlements to cross country payments will be made easier being facilitated by new technology such as blockchain. The big challenge will be how regulators respond to this ever-changing environment do. 

What does Blockchain mean for the future of banking? 

Economic theory predicts that a low-cost competitor enjoys cost advantage only when high-cost competitors are still involved in the market. Several banks have adopted blockchain, the market competition will pressure all banks to pass on the initial profit made back to individuals.

Blockchain technology can be utilised towards much more than just digital currencies such as Bitcoin or developing new financial technologies. This smart contract can be used for other areas, such as documents provenance, ownership rights, digital or physical assets or to stop fraud. In the diamond industry for instance, the digital ledger for diamond identification and transaction verification has enabled to bring more transparency in a once very opaque diamond market.

Some of the cases where Blockchain could help the financial services industry are:

1. Trade Finance

Financing became an integral part of trading operations. A better connected, highly automated and far more open infrastructure that will enable more efficient trade finance solutions for customers is the new goal for businesses. However, a smart contract would authenticate all the properties to facilitate a frictionless trade, can reduce processing time, eliminate the use of paper and save money while ensuring transparency, security, and trust.

2. Remittances

GCC region has a significant number of migrants who have moved to these countries for a higher pay and they send money back to their home country frequently. Traditionally, international money transfers can take days to complete due to the number of required verifications. Blockchain remittance companies provide instant money transfer services. Though money transfers via swift messaging is quick, the costs are high. UAE accounts for more than $19 billion of remittances per year, ranking it fourth in the world, according to World Bank data.

3. Back office compliance and reconciliations.

Back office works is a big part of banking activity. Regulation and compliance issues lead to a lot of checks and counter checks. Effective management of account reconciliation activities would enable companies to proactively identify and resolve issues that could result in misstatements in financial accounting, reporting records and lead to substantial write-offs. United Arab Emirates has envisioned to become the first government to execute all of its payment on the blockchain by 2020.

A study by IBM’s Institute for Business Value (IBV) found nine out of 10 government organisations plan to invest in blockchain for use cases ranging from financial transaction management, asset management, contract management and regulatory compliance in 2018. Of these, nine out of 10 Middle East and Africa government executives see contract management as the greatest potential new business model as it would bring complete visibility to the failure of any party to meet a deadline or complete a task.

To discuss please contact:
Nicholas Jones, Senior Manager at Robert Walters Dubai
Tel: +971 4 8180 107
E-mail: Nicholas.Jones@RobertWalters.com