Revolutionizing Finance: The Impact of Blockchain Technology on Banking and Lending | Fynance

03 Feb, 2023

Share this

Blockchain technology has been making waves in the finance and fintech industry in recent years, and it's easy to see why. With its ability to provide secure and transparent transactions, blockchain has the potential to revolutionize the way financial services are conducted. In this article, we will explore what blockchain is, how it impacts banking and lending, trade finance, and user data security, and the benefits of using blockchain in financing services.

Photo by Freepik

What is Blockchain?

A blockchain is a decentralized digital ledger that records transactions across a network of computers. Each block in the chain contains several transactions, and every time a new transaction is added to the block, a cryptographic hash of the previous block is included in the new block. This creates a chain of blocks that cannot be modified, providing a secure and transparent way to store and transfer information. The most well-known application of blockchain technology is the cryptocurrency, Bitcoin.

Simply, blockchain is like a giant digital notebook where people can write down and keep track of important information. Imagine you and your friends want to keep track of who brought snacks to a party. Instead of writing it down on a piece of paper, you can write it in a notebook, and everyone at the party can see it and add to it. With blockchain, the notebook is kept safe and secure, and no one can change what has been written down. This makes it a great way to keep track of important things like money, property, or other valuable items.

Photo by Freepik

How Does Blockchain Impact Banking and Lending?

Blockchain technology holds the potential to revolutionize the banking and lending sector significantly. A few of its potential impacts are:

  1. Increasing Transparency and Security:  The decentralized and immutable nature of blockchain transactions can lead to greater transparency and security in financial dealings. 
  2. Lowering Costs: The decentralized nature of blockchain technology could eliminate the need for intermediaries like banks, thus reducing transaction costs. 
  3. Enhancing Efficiency: The utilization of smart contracts, self-executing agreements encoded into code, can automate processes and minimize manual intervention, potentially leading to increased efficiency in the banking and lending sector. 
  4. Expanding Credit Access: Blockchain-based platforms have the potential to simplify credit access for individuals and small businesses by offering a more efficient and transparent risk assessment mechanism for lenders. 

Photo by Pexels

How Does Blockchain Impact Trade Finance?

Not only the banking and lending industry, but Blockchain technology has also impacted trade finance due to the same reason, and also the feature below:

  1. Improving Credit Scoring Accuracy: Blockchain-based systems can create an accurate and unalterable record of credit history, thereby enhancing the visibility, security, and efficiency of the credit scoring process. 

  2. Simplifying Cross-border Transactions: The use of blockchain technology could lead to quicker, cost-effective, and more efficient cross-border transactions by removing the need for intermediaries and lowering the risk of fraud. 

  3. Enhancing Supply Chain Transparency: Through real-time tracking and monitoring, blockchain technology can improve the transparency of supply chains, providing insights into the movement of goods.

  4. Revising Fraud Risk: The secure and transparent characteristics of blockchain technology can minimize the occurrence of fraud through the creation of an unchangeable and impervious record of transactions.

TradeLens is a good example of a blockchain-based platform that has already made an impact on trade finance. TradeLens is a blockchain-based platform that offers real-time visibility and tracking of global trade transactions. This platform has been embraced by multiple shipping companies, customs authorities, and logistics providers to streamline operations and reduce costs.

Another example is Fininity, which is a blockchain-based platform that provides a secure and transparent way to automate trade finance processes. It aims to simplify trade finance and make it more efficient by removing intermediaries and reducing the risk of fraud. Femininity has been implemented by several financial institutions and is being used to streamline trade finance processes, reduce costs, and increase efficiency.

Photo by Freepik

How Does Blockchain Secure User Data?

The biggest advantage of blockchain technology is its security. Blockchain technology secures user data by using advanced cryptography to create a tamper-proof, decentralized ledger. This ledger is distributed across a network of computers, and transactions are recorded in blocks that are linked together in a chain. Each block contains several transactions, and every time a new transaction is added to the block, a cryptographic hash of the previous block is included in the new block. This creates a chain of blocks that cannot be modified, providing a secure and transparent way to store and transfer information. 

The cryptographic techniques used in blockchain technology, such as hashing, digital signatures, and consensus algorithms, make it very difficult for hackers to tamper with the data stored on a blockchain. In addition, the decentralized nature of a blockchain means that no single point of failure exists, making it more resilient to attacks.

It's also worth noting that in some blockchain implementations, the data is encrypted, meaning that even the nodes that store the data, can't access the data stored on the chain. This is called "off-chain data storage" or "off-chain data computation" and it allows the storage of sensitive data like personal identification numbers, credit card numbers, etc.

Simply, Blockchain technology helps to secure user data by using advanced code, called cryptography, to create a digital ledger of information. This ledger is like a big digital notebook that is kept on many computers at the same time, making it difficult for bad guys to change or steal information. If anyone tries to change the information, it's immediately noticed and rejected by all the other computers in the network, keeping your information safe and secure.

Photo by Pexels

Benefits of Using Blockchain in Financing Services

The benefits of blockchain in the financial industry are countless and transformative. With its ability to increase transparency, and security, and reduce costs, blockchain has the potential to revolutionize financial transactions. Not only does blockchain provide secure and unalterable record-keeping, but it also minimizes the risk of fraud and increases trust in the financial system.

In addition to these benefits, blockchain also offers enhanced security for user data. By utilizing advanced cryptography, blockchain creates a decentralized ledger that makes it difficult for hackers to tamper with stored information. This ledger is distributed across a network of computers, making it more resilient to attacks and reducing the risk of data breaches. In certain blockchain implementations, data can even be encrypted and stored off-chain, providing a secure and tamper-proof way to store sensitive information like personal identification numbers and credit card details.

In the realm of trade finance, blockchain can streamline cross-border transactions and improve credit scoring accuracy. By eliminating intermediaries and lowering the risk of fraud, blockchain can make cross-border transactions faster, cheaper, and more efficient. Furthermore, with a secure and tamper-proof record of credit history, blockchain can enhance visibility, security, and efficiency in the credit scoring process. 

Photo by Freepik

Although the technology is still relatively new and untested, its potential impact on the financial sector is clear. Therefore, it is crucial to continue investing in research and development to fully understand and maximize the potential of blockchain technology.

You will be interested

Technology advancement in booming durian industry

Durian, or often known as King of Fruit is native to Southeast Asia countries. Durian industry in Malaysia can be boost through the use of technology.

zeroas in Technology 2 years ago

Banking at Your Fingertips: How Digital Banking is Changing the Game in Malaysia | Fynance

Discover the future of banking in Malaysia with digital banking. Learn about the benefits, trends, and technologies driving the growth of digital banking.
CCK in Technology 1 year ago

AI and Finance: Unlocking New Frontiers of Innovation and Opportunity | Fynance

"Discover the impact of AI on the financial industry, from automated trading and fraud detection to personalized advice and ethical considerations. Read more."
CCK in Technology 1 year ago

AgriTech in Malaysia: Slow but Steadily Growing

Agricultural Technology (AgriTech) uses technology for farming developed to improve efficiency and profitability.
西瓜真甜哦~ in Technology 1 year ago