What are the benefits of blockchain in financial services?


With the rise of new digital technologies that are disrupting the financial market, many industry participants are keen to learn more. What benefits does blockchain offer?

In a recent post by Moody’s Analytics, the company outlined how the technology has the potential to truly disrupt finance and help fix challenges in the sector at the same time. 

Blockchain has a range of applications, including AML compliance, Moody’s highlighted. For example, regulated firms can record on-chain when their business verification checks are performed, who performed them, and what the results were.

Moody’s highlighted that they will have this immutable process log available on demand, which simplifies both internal and external compliance audits as records can be shared easily and instantly between relevant parties. This ultimately allows regulators and other participants to review the record at will, speeding up transactions and the audit process.

Blockchain also makes your record of KYC and KYB checks unalterable, due to the immutable structure of the underlying distributed ledger technology.

However, many financial companies can find themselves overwhelmed by the potential complexity of blockchain. Moody’s states, however, that the idea behind it is simple.

“A blockchain is simply a ledger, the kind held by millions of users, companies, government agencies and other entities to keep their records. But with blockchain, there can be one single ledger which is distributed, meaning it is contributed to by many people and yet transactions recorded on the ledger itself are unchangeable and immutable.

“This offers transparency without the need to trust a third party to maintain the ledger. In turn, this means that blockchain is a much faster way of storing and accessing data than any traditional system could ever be.”

A key benefit of blockchain technologies, Moody’s claims, is that they often prevent domination by a single computer or group. This can make blockchain almost impossible to alter or hack because the hacker may change every block in the chain across all distributed versions. You can also use blockchain for any assets that traditionally need third-party verification, reducing friction, complexity and cost.

Over time, refined validation mechanisms have allowed blockchains to mitigate many modern security risks. Refinements include proof of stake – a consensus mechanism used to confirm transactions and create new blocks through randomly selected validators; and proof of work, which verifies the accuracy of any transactions based on computational power required.

And by securely automating processes – such as transaction settlements, verifications, or document transfers – blockchain technology provides a low-cost and low-maintenance alternative to many financial systems.

Furthermore, blockchain tech has also become increasingly valuable for audit and KYC compliance. They can store a range of information – such as inventory, identification, and legal contracts – in a secure, traceable, and verifiable system. This provides a strong audit trail that includes immutable records of due diligence tasks, procedures, and shared documents.

Blockchain technology also supports compliance automation by providing clean, accessible, real-time data. For example, instead of asking people and third parties for their bank statements or other records, reviewers and auditors can verify transactions on blockchain records instantly, without contacting intermediaries.

To read the full post, click here.

SettleMint, which has developed a high-performance low-code platform for blockchain application development, recently raised $16m in its Series A.

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