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Blockchain: For Secure Financial Transactions

Blockchain: For Secure Financial Transactions

October 10, 2017

by ACS Solutions

An Introduction to Blockchain

When Satoshi Nakamoto first created the cryptocurrency Bitcoin in 2008, it was viewed with immense distrust. It still is to a considerable extent. Centralized banks and regulatory agencies remain skeptical and refuse to adopt it. However, its underlying technology, blockchain has become one of the most talked-about topics for the financial sector today. Nearly every global player in the industry is exploring the use of this technology for faster and more accurate payment processing, reduction in costs, quicker settlement cycles and a decline in exceptions.

It is also expected to unleash a new wave of financial products and services generating new avenues of earning for banks.

Blockchain, also known as “distributed ledger technology”, was originally created as a tracking database for Bitcoin transactions. It was designed to process transactions without the need for a central bank or intermediary. It uses complex algorithms and consensus among its peer-to-peer network to verify transactions.

Potential for Disruption

In the past couple of years, banks and financial institutions have been betting on this technology to provide a reliable alternative to systems that depend on intermediaries and third-party validation of transactions. Their goal is to leverage blockchain’s distributed ledger approach to create a system that decentralizes trust. This can significantly reduce all types of transaction fees while ensuring shorter processing timelines.

The disruptive potential of this technology is widely claimed to equal that of the early commercial internet. A crucial difference, however, is that while the internet enables the exchange of data, blockchain could enable the exchange of value. That is, it could enable users to carry out trade and commerce across the globe without the need for payment processors, custodians, and settlement and reconciliation entities.

Governments, the world’s largest financial institutions, global banks, and other financial organizations are investing in proof-of-concept projects internally. They’re using trial and error deployments with limited parameters to create efficiencies.

In our view, the key considerations for exploring the adoption of blockchain as a viable alternative for the financial sector are:

  • Identify opportunities for innovation
  • Determining feasibility and impact on legacy systems
  • Testing proofs of concept
  • Understanding the regulatory and data security implications
  • Dissecting the blockchain implementation: open vs. permissioned.
  • Planning for transaction scalability
  • Forming partnerships and cross-functional and cross-industry collaboration

The full potential of blockchain can only unravel when banks and financial institutions partner together to set industry standards and protocols that enable interoperability.

Applications in Banking and Finance

At ACS Solutions, we strongly believe that the underlying principles of blockchain i.e.: decentralization, consensus-based validation systems and use of unique digital signatures will reinforce the financial system, which was recently found to be increasingly vulnerable to online frauds.

For our banking partners, we recommend the use of blockchain in areas such as:

  • Payments: It can transform the world of digital payments to near real-time transactions with real-time settlements, without intermediaries. Development of new payments products, based on blockchain technology such as self-executing smart contracts are the next step
  • KYC/AML and records management: A decentralized, network-defined registry makes KYC processes streamlined and helps in AML checks and controls during client onboarding
  • Capital markets: A distributed and consolidated data repository built on blockchain technology gives users a unified and real-time view of all trade-related information. This reduces the scope for error or disagreement and accelerates the settlement process
  • Trade finance: The complex network of players with manual processes and paperwork is transformed into efficient and innovative trade finance services
  • Syndicated lending: Blockchain in syndicated lending aims to reduce the settlement process on the sell-side and buy-side, thus saving time and costs worth millions
  • Regulatory reporting: Easy access to transaction reporting data for regulators will reduce the cost of regulatory reporting of market participants

The use of blockchain, when applied to legacy processes of the banking and financial services firms, has potentially transformative effects in the space. However, it is essential to bolster the technology infrastructure even before banks start testing the waters. Based on our inferences from proof-of-concept experiments, we've found that blockchain has exceptionally high impact and it leads to:

  • Lower operational costs
  • Seamless global trade
  • Reduced risk in clearing
  • Increased trust
  • Distributed Identity

At ACS Solutions, we are committed to delve deep into every process and transform it into the most efficient and secure operational flow with the implementation of blockchain technology. We partner, collaborate with and support banking and financial institutions in their endeavour to implement blockchain and our proven track record of high-quality successful implementations are a testimony to this fact.