Blockchain technology is the buzzword in financial institutions. The blockchain is considered as an innovative technology which has made the world more transparent and efficient. It has the ability to address some of the obstacles to providing affordable and usable financial access such as account opening, account usability, and costs incurred to a financial institution.
Significant Role in Financial Inclusion
Experts say blockchain can play a significant role in accelerating financial inclusion. It can empower and transform the lives of billions. The Global Financial Development Report describes financial inclusion as the proportion of individuals and firms that use financial services. Financial inclusion is positively correlated with economic growth. It enables the poor to improve their lives. According to research by Georgetown University using this newest technology can lower costs, reduce risk and enhance financial innovation. “Blockchain technology allows financial innovators to provide specific solutions to the regional problems faced by the unbanked (individuals who don’t have access to financial services), allowing them to develop tailored solutions to a massive and complex global problem. The World Bank has identified that the majority of the unbanked are from Africa, Asia, Latin America, and the Middle East.
The research highlights that blockchain’s unique characteristics allow financial institutions to tailor their products and services, and thereby, promote ease of use for the unbanked and underbanked. A good example is Coins.ph, a Philippine company, that provides users a mobile, blockchain-based platform to allow them to send money at a more affordable and faster rate. As per sources, blockchain allowed Coins.ph to build an application to facilitate fund transfers without reliance on existing banking infrastructures and to be more agile in their services at a more affordable price.
Moreover, as per the research, individuals do not need to travel to a financial institution to open an account or deposit cash. “They are able to open an account on their phone thus avoiding the travel costs to set the account up. They are also able to deposit money into the account via a number of third-party agents. This makes it easier to get the money into the system.”
But there are other challenges than just opening an account. However, through blockchain, users and the institutions as a whole get ease. The Georgetown University says one of the differences between the current payment infrastructure and blockchain is that blockchain can transfer the value in a near instantaneous manner. Moreover, transfer fees are applied as a percentage of the transfer’s value rather than a fixed rate, and the transfer requires no minimum payment amounts. “Payments via a blockchain do not need to go through the national payment system. Financial institutions are able to offer more services digitally.”
Blockchain enthusiasts say the new technology can transform the banking sector. The We Forum states that “the corruption scandal such as the 1MDB case, involving one of the most prominent financial institutions, could have been averted by the use of blockchain technology.”
Blockchain’s near impenetrability offers a solution to corruption, as no government can add or remove cash from circulation. The financial institutions and the banking system as a whole can greatly benefit from blockchain.