Key Takeaways:
- Look at the current condition of the global financial market and the inherent issues its workflow carries.
- Explore how using blockchain in BFSI can bring about sweeping changes in all facets involved in the sector.
- Find out the business prospects of blockchain development for BFSI in the current market situation.
The global economy is growing steadily (although not at the desired rate) despite being crippled by a plethora of geopolitical issues and governmental stances. The role of the BFSI (Banking, Financial Services, and Insurance) sector has become more prominent than ever as technology has made it possible for people to interact digitally with their money. However, as wise people say, “With great sophistication comes great problems,” and words could never be truer than what we see now. As an alternative, experts believe that blockchain technology could pave the way for an efficient BFSI sector, which needs a lot of exploration before implementation. This blog will focus on the role of blockchain in BFSI and how this novel technology can revolutionize the space for good.
Current State of the Global BFSI Sector
As we are almost halfway into the 2020s, people’s perception of conventional BFSI (Banking, Financial Services, and Insurance) has changed drastically. While rapid digitization of the sector (quickened due to the pandemic lockdowns) is a huge reason for the change in understanding, the evolution of alternative financial technologies, like cryptocurrencies, has attracted a sizable portion of the population.
- According to a report from Statista, the global market for banking is projected to reach a staggering $10.34 trillion by the end of 2024, growing from $8.37 trillion in 2023. The market is also expected to grow at a CAGR of 4.82% from 2024 to 2028, ultimately reaching $12.48 trillion.
- When it comes to the global financial services sector, a report from The Business Research Company indicates that it will grow to $33.54 trillion by the end of 2024, having started from $31.14 trillion in 2023, indicating a 7.7% annual growth. Fast forward to 2028, the report also shows the market will grow to $44.93 trillion by 2028 at nearly the same CAGR (7.6%).
- While exploring the global insurance sector, we came across the fact the industry was at least worth $6 trillion in 2022, with the figures expected to grow in the coming years. Increasing awareness among people to purchase insurance policies worldwide alongside rising premiums increases the industry’s market capitalization.
How Can Blockchain Technology in BFSI Boost Banks’ Performance?
While the use of blockchain in BFSI is not entirely unexplored, industrial players have gone only a few steps into the vast possibilities on offer. In fact, multiple global banking giants have piloted their own blockchain tools that even involve cryptocurrencies, although that is out of our scope.
- Using blockchain technology in banking can reduce the time incurred for basic operations like securing mortgages and business loans, which often take weeks or even months in the current workflow. Processes such as data verification, credit scoring, loan processing, and fund distribution can become seamless when blockchains are used as a medium for storing and transmitting data.
- By doing so, the risk of counterparty involvement and increased issuance and settlement times can be brought down to bearable levels. While blockchain technology would not suddenly make the centralized BFSI sector decentralized, it could facilitate the automation of time-consuming processes that could ensure a speedy workflow.
- Alongside these, unnecessary costs incurred in the current workflow can be cut down, making banking operations financially affordable for everyone. This can elevate global transaction activity through banks and strengthen the global economic condition, which has been considerably impacted by the growth of unofficial and unrecognized financial service providers.
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Blockchain in Financial Services: How Is It Beneficial?
The scope of blockchain in financial services has not been fully realized despite the industry having a rich understanding of the implementation possibilities. Although sweeping changes have not yet been brought about, multiple high-profile financial projects based on blockchain technology are under development, indicating a revolutionary uprising is only a matter of time.
- The financial services industry is far and wide, unlike the other two, meaning possibilities extend from capital markets and asset management to trade finance and payments and remittances. Such a nature makes it possible for financial giants to explore the impact of blockchains on various facets of financial services.
- This part of the BFSI industry can directly involve government issuers, as central bank digital currencies (CBDCs) are seen as a vital use case of blockchains in financial services. Also, with most capital markets and remittance solutions operated by government-backed entities, it is safe to say that blockchain-based financial services will experience immense growth in the upcoming years.
- Alongside these points, the usual factors of intermediary elimination and cost efficiency come into play, making financial services accessible to a larger portion of the global banked population. Using blockchains also makes it possible for international financial service requirements to be satisfied without lengthy processes and regulatory hindrances.
How are Blockchains Useful in the Insurance Market?
With the role of insurance becoming more prominent in the digitalized financial era, applying blockchain technology will only make its use more efficient and accessible for all. Prominently speaking, data communications between various stakeholders can be accelerated using blockchains, as most situations need immediate high-value settlements.
- Specific use cases, such as registering high-value items and warranties and performing KYC and AML procedures for users, can be quickened and secured using blockchains, as data can be accessed in a decentralized manner. Doing so enhances trust across stakeholders, even if they are borders away from each other.
- With blockchain technology, reinsurance processes and claims settlements can be executed quickly. Any stakeholder can share insurance data safely in real-time and automate risk modeling and audits, easing hassles around reinsuring. In terms of settlements, tamper-proof records indicating claim requests can greatly aid in ensuring transparency and data security.
- Blockchain can also immensely benefit insurance distribution and Peer-to-Peer (P2P) insurance in the BFSI sector. Distribution actions can be coordinated between multiple stakeholders on online portals, and users can manage all their insurance policies under one portal. P2P insurance solutions can be made seamless using smart contract programs to automate tasks.
Conclusion
Therefore, we have seen the role of blockchain technology in BFSI impact the global economic space. With the complexity of blockchain financial services evolving, it is wise to say that implementing this piece of technology is a must and not an option in the coming days. If you are planning to make your financial firm efficient or begin a business in the sector with efficiency in mind, opting to use blockchain for your BFSI needs could be a decisive move. Our experts in blockchain development for BFSI applications can assist you comprehensively in bringing your vision into reality while ensuring transparency, seamlessness, and security are intact. Contact one of our professionals today to sketch a vivid plan for your blockchain-based BFSI solution!
