How blockchain technology might alter the financial sector in the future

The post-pandemic economy, driven by altered consumer behaviour and the demand for higher system resilience, is anticipated to hasten the adoption of Web 3.0. While the metaverse and NFTs came into prominence in 2021, blockchain technology is the focus this year. Governments and organisations alike are increasingly depending on technology to unlock scalability in a cost-efficient and data-safe manner in order to create secure, decentralised ecosystems for more user participation and empowerment.

Blockchain
Blockchain

Leading financial institutions all over the world have been making significant investments in the technology. Industry forecasts predict that over the next four years, the global blockchain market will expand at a rate of 46%, with the finance sector driving this adoption.

Driving Chances for Growth

Blockchain, which is essentially a distributed ledger technology, is being used for banking and finance solutions because of its seamless automation, data decentralisation, and user-friendliness, which can bridge all digital literacy levels. Protection against KYC and ID fraud, the exchange of transaction information, and cross-border payments are a few of the major areas where the banking, financial services, and insurance (BFSI) sector is quickly implementing blockchain-based solutions. Moreover, according to market sources, the technology might enable banks to save up to US$ 4 billion annually on operational costs compared to just cross-border payments.

While profile-based suggestions and updates can be produced using technologies like AI and ML, blockchain applications like smart contracts have the potential to revolutionise the way in which investors interact with their investments. To check if their investments are matching pre-established criteria, investors can log in from their phones and grant the necessary authority to handle their funds in accordance. Such democratisation has the potential to advance both fintech and financial inclusion.

Currently, technologies like Microsoft’s ION are assisting financial businesses, particularly fintech start-ups, do away with costs involved in constructing powerful back-end and front-end systems by creating secure peer-to-peer ecosystems. Instead, the sector can opt to prioritise customer interaction and product innovation, which will open up new markets and client bases while also allowing for higher penetration of current consumer communities.

This is expected to hasten the emergence of businesses and platforms that aim to match Amazon or Flipkart in terms of the quality of their customers’ experiences. Modern retail investors, particularly clients who are digital natives, demand a personalised portfolio management experience.

Indian context on it

The opportunity is particularly important in a nation like India, where traditional investment preferences are giving way to newer habits as a result of declining interest rates on debt investments, surplus funds as a result of rising incomes, and a preference for a balanced debt-equity exposure as a result of ongoing global volatility. Additionally, India’s digital investment market is expected to increase at a five-year CAGR of 22.4% to reach USD 14.3 billion by 2025, driven by its largest generation, millennials.

According to the 2019 Insights Banking and Finance Service landscape studies, organisations providing banking and financial services were targeted more frequently. Since the publication of the report, malware has been used more frequently to attack this sector. In order to safeguard the crucial information of millions of consumers and their hard-earned money, BFSI needs to upgrade their cyber security system.

When effectively implemented with other Web 3.0 technologies in this context, the influence of blockchain can produce very fluid financial investment experiences. These could appeal to senior adults seeking more control and convenience in a developing investing environment outside of fixed deposits (FDs) and recurrent deposits, as well as investors from semi-urban regions and urban millennials (RDs).

Future blockchain adoption in India will be significantly influenced by how quickly and effectively governments develop and update regulatory frameworks for the technology. Governments all over the world are now appreciating the potential afforded by blockchain to alter businesses and enhance the economy, even though we are likely to face quite a few obstacles on this journey.

The highest possible levels of data security and transparency are two of the major benefits that blockchain offers in a company environment that is becoming more and more digital-first. In fact, I think this is the fundamental aspect of the technology that will drive its acceptance throughout the BFSI sector.

Financial institutions are beginning to recognise the value of blockchain after spending enormous sums of money each year modernising legacy systems or transitioning to sophisticated hybrid cloud systems in their quest for secure operations. Blockchain networks are confidential but not anonymous like bitcoin. This gives organisations total access to transaction information without running the risk of jeopardising user identity or tampering with transaction data.

Government-related blockchain projects in India are anticipated to generate USD 5.1 billion in GDP in 2032. It is only a matter of time before businesses figure out how to use blockchain’s untapped potential to deliver next-generation products and services in personal finance, especially with initiatives like Digital India emphasising the development of a digitally empowered society and a knowledge-led economy.

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