How blockchain can transform the future of finance

The post-pandemic economy, driven by changing customer behavior and the need for greater resilience in business systems, is expected to accelerate the adoption of Web 3.0. While 2021 saw the metaverse and NFTs come into focus, this year all eyes are on blockchain technology. Governments as well as enterprises looking to build secure, decentralized environments for greater user engagement and empowerment are increasingly relying on the technology to unlock scalability, in a data-safe and cost-effective manner.

Top financial institutions worldwide have invested aggressively in the technology. According to industry estimates, the global blockchain market is expected to grow at a rate of 46% over the next four years, with the financial industry leading this adoption.

Drive growth opportunities

Blockchain is basically a distributed ledger technology being adopted for financial and banking solutions that translates into seamless automation, decentralization of data and ease of use, which can cut across digital skill levels. Some of the key areas where the banking, finance and insurance (BFSI) industry is rapidly implementing blockchain-based solutions include protection against KYC and ID fraud, transaction information sharing and cross-border payments. Market reports, by the way, estimate that the technology could help banks save up to $4 billion each year on operational costs in cross-border payments alone.

By creating secure peer-to-peer ecosystems, technologies such as Microsoft’s ION are currently helping financial organizations, including fintech start-ups, shed the costs associated with building robust back-end and front-end systems . Instead, the industry can choose to focus on customer engagement and product innovation, unlocking growth at both levels – new markets and customers, and greater penetration among existing customer environments.

This is set to accelerate the next level of growth for organizations and platforms that focus on providing customer experiences that are on par with an Amazon or a Flipkart. Modern retail investors, especially digital-first clients, expect a personalized portfolio management experience.

While technologies like AI and ML can help create profile-based recommendations and updates, blockchain applications like smart contracts can be game-changers in creating a highly transparent and personalized investment experience. Investors can log in from their phones to see if their investments meet pre-defined criteria, and grant the necessary permission to manage their funds, accordingly. Such democratization can drive fintech as well as financial inclusion to new heights.

The Indian context

The opportunity is particularly important in a country like India, where traditional investment preferences are giving way to newer habits due to falling interest rates on debt investments, surplus funds due to rising incomes and a balanced exposure preference for debt and equities due to continued global volatility. Furthermore, led by the country’s largest demographic – millennials – India is set to see its digital investment market grow at a five-year CAGR of 22.4% to become a USD 14.3 billion market by 2025.

In this context, the impact of blockchain, when deployed strategically with other Web 3.0 technologies, can create highly fluid financial investment experiences. These have the potential to engage not only urban millennials, but investors from semi-urban markets as well as retirees seeking greater control and convenience in an evolving investment environment beyond the fixed deposits (FDs) and the recurring deposits (RDs).

The 2019 Insights Banking and Finance Service landscape reports stated that banking and financial services organizations were being targeted more frequently. The use of malware to target this industry has only increased since the report. It is time for BFSI to strengthen its cyber security system to protect the important data of millions of customers and the money they have invested.

One of the biggest benefits that blockchain offers in an increasingly digital-first business environment is that it brings in maximum levels of data security and transparency. In fact, this is the underlying feature of the technology that, I believe, will drive its accelerated adoption in the BFSI industry.

After spending huge budgets every year updating legacy systems, or migrating to complex hybrid cloud systems in their quest for secure operations, financial institutions are seeing the value of blockchain. Unlike bitcoin, blockchain networks are not anonymous; they are confidential. This gives institutions full access to transaction details without the risk of compromising user identity or manipulating transaction data.

Going forward, a key driver of greater blockchain adoption in India will be how quickly and successfully governments create and revise regulatory frameworks for the technology. While we will likely deal with quite a few roadblocks on this journey, governments around the world are now realizing the potential offered by blockchain to transform industries and strengthen economies.

In India, government-related blockchain projects are estimated to generate USD 5.1 billion of GDP revenue by 2032. With programs like Digital India spotlighting the creation of a digitally empowered society and a knowledge-driven economy, it is only a matter of time before businesses learn to harnessing blockchain’s untapped potential to deliver next-generation personal finance products and services.

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