on Aug 29th, 2018.
5 Reasons to Invest in Blockchain Network
Cross-border transfers - payments and remittances have been exposed to loopholes in the system which leads to a high risk of illicit actions and high fees. These fees can vary from 1% to 22% and are often paid by the most vulnerable groups.
Luckily, a more cost-effective way has made it to the scene - blockchain technology, which has accumulated $1 billion in funds over the past half a decade. These are the top 5 reasons why even banks are turning to this technology:
- Cost savings - according to some estimates, it could save up to $12 billion in costs. A report by FICCI and PwC argues that by cutting out the “middleman”, i.e. manual work by third parties for managing transactions and record keeping, will effectively cut down expenses. Also, shortening the time for making the cross-border transaction and the automatization of the process will increase the satisfaction and the trust of the customers.
- Save on expansion costs - banks can now compete with the remittance moguls without having to investment in infrastructure. According to a Santander’s study on FinTech, distributed ledger technology could reduce financial services infrastructure cost between $15 billion and $20 billion per annum by 2022.
- Build correspondent banking network faster and cheaper - this is a result of blockchain being an open source technology which allows eliminating some participants in the transfer establishing direct connection between the banks. Among the first banks to have established correspondent banking network using blockchain are J.P. Morgan, Royal Bank of Canada, and Australia and New Zealand Banking Group Limited.
- Break payments monopolies - monopolies lead to unjustified prices, breaking entrance barriers would lead to a higher level of competition and lower transaction fees. For example, there are very few companies that offer remittances in Russia which monopolize this market. This technology could eventually introduce new players on the market.
- High-level transparency and trust - the process by which this technology operates allow transparent and consensus-based transacting. IBM points out that “blockchain is a type of distributed ledger, all network participants share the same documentation as opposed to individual copies. That shared version can only be updated through consensus, which means everyone must agree on it.”
However, caution must be advised. This technology is still in its infancy and its development will take time. For instance, there is substantial lack of blockchain developers and the implementation costs are very high as opposed to the long-term reduced costs. Another implementation obstacle is lack of regulations which leaves the technology without standards since there are three organizations with their own standards and code; and open issues of privacy and security because unlike the case with cryptocurrencies, governments and corporations have a need to protect and restrict access to their datа. As with all new tech, it takes time and testing to answer all open questions that executives have.
The disruption made in the field of payments has decreased fraud risks, lowered costs and opened new market opportunities. It is no wonder that banks and non-bank institutions are pouring funds into the development of blockchain technology.