Blockchain’s potential to transform the financial services landscape can’t be underestimated. As the cornerstone of decentralized finance (DeFi), the technology has the ability to empower more users and even underbanked global communities to improve their access to essential services. 

According to Market Research Future data, the blockchain in fintech market size is projected to grow from $3.25 billion in 2024 to $50.7 billion by 2032, representing a CAGR of 40.95% over the forecast period. 

The speed at which blockchain is expected to be adopted and utilized to improve financial services is critical, and the payments landscape is set to be the first sector in which the technology makes its presence felt. 

However, blockchain’s influence is expected to extend throughout the world of finance. But what actually is blockchain? And how can it improve the financial landscape? Let’s explore one of the most important technological developments of the decade in closer detail: 

What is Blockchain? 

While blockchain is readily associated with cryptocurrencies like Bitcoin, its use cases extend way beyond the confines of digital currency. 

Cryptocurrency payments are reliant on blockchain technology to ensure a secure and frictionless transaction from digital wallet to digital wallet. Because blockchain acts as an immutable digital ledger, there’s no need for third parties to be involved in the transfer of ownership. 

Using blockchain, actions can be programmed to automatically take place based on pre-determined conditions using smart contracts. These conditions can be anything from bonuses based on output at work, to payments upon the receipt of physical goods between parties. Hare, the network acts as a notary, and there would be no need for an intermediary. 

Because blockchain exists as a network of distributed nodes, the security benefits of these networks can form the foundation of many different financial services. These include: 

1. The Next Generation of Banking

Banking consists of many different services like transactions, loans, mortgages, and various payment services. These are currently dependent on legacy processes of execution. 

Factors like information verification, credit scoring, loan processing, and distribution of funds can all be inefficient as a result of these legacy processes. It can take between 30 to 60 days for borrowers to secure a mortgage, while businesses could wait up to three months to access a business loan. 

Blockchain can streamline these processes, reducing counterparty risk and rapidly lowering issuance and settlement times. 

Operational risks can be mitigated by authenticated documentation and KYC/AML data, which enables the real-time verification of financial documents. 

We can also see blockchain pave the way for more accuracy in credit scoring markets, creating real-time reports through the collation of user activity and sanctioned data throughout a network. 

Blockchain can also automate processes like syndicate formation, underwriting, and disbursement of funds to improve efficiencies throughout the banking sector. 

2. Insurance Revolution

Blockchain’s potential to revolutionize the insurance industry stems from its seamless ability to streamline the claims processes of users, while enhancing transparency and tackling issues resulting from fraud. 

Storing policy and claims data on a blockchain can help insurers to automate their claims process and use of smart contracts, paving the way for faster payouts and less administrative costs. 

The accuracy of blockchain risk assessments can help to make case-by-case decisions based on factors such as customer spending behavior, contextual insights into interest rates and credit cycles, and wider market sentiment analysis to gain a more holistic view of how living costs may impact the financial circumstances of borrowers over time. 

3. Efficiency in Money Transfers

One of blockchain’s strongest use cases stems from the seamless ability to move cryptocurrencies between digital wallets without the need for a central governing body. 

As blockchain technology became more sophisticated, it has opened the door to the possibility of faster and more cost-effective transactions. 

More financial institutions are capable of adopting blockchain technology to deliver more efficiency when it comes to money transfers that could otherwise take hours or even days to take place. With blockchain on hand, transactions beyond borders can occur in a matter of seconds, all without expensive fees attached. 

4. Greater Transparency

With the help of blockchain, we can achieve greater transparency among financial institutions at scale. 

This is because digital ledger technology can directly help to improve regulatory reporting and monitoring by central banks, provided that regulators have access to the blockchain. 

This could potentially open the door to effective self-governance within the financial sector, helping to maintain a fair level of efficiency while keeping user interests protected moving forward. 

The Blockchain Revolution is Underway

Blockchain remains one of the most exciting and high-potential emerging technologies in the financial sector. 

The technology offers a decentralized ledger of all transactions throughout a network, paving the way for a more trust-based ecosystem for transactions, borrowing, and other complex services within the industry. 

With the industry set to grow significantly over the coming years, its emerging use cases are likely to accelerate as more institutions tap into its cost efficiency and responsiveness in the future. For a financial services industry still contending with legacy frameworks, blockchain represents an exciting look to the future.