Blockchain, digital transformation in the financial sector

The financial services industry is essentially focused on providing services that facilitate the exchange of value between different actors. Delivering these services while providing assurance of trust to all involved is a daunting challenge and responsibility, especially in an ecosystem where prevailing competition natively imposes habitual mistrust. In recent years, the practical and intensive application of technology in traditional financial activities has resulted in the birth of the FinTech concept.

This has paved the way for incorporating innovative ideas into historically manual, intermediary-ridden processes characterised by time-consuming, costly and error-prone tasks. One of the most recent results is the creation of the Open Banking concept that allows interaction with financial services through IT tools or resources such as user programming interfaces – commonly known as APIs.

In this context of modernisation of services, many financial institutions are considering the value of Blockchain technology to adapt and optimise traditional processes in order to offer a better experience to their customers.

The transfer of value of goods is born

The Internet has so far provided us with the ability to transfer information with which we model goods, but there is a problem with the security of that information as it is duplicated over time and in its various interactions. A concrete example is when we transfer by email an electronic entry based on a QR code. In reality, what is happening is a replication of the information as the QR code remains on the computer of origin, but also replicates in the client’s email in their inbox and outboxes, as well as in the many places where the code is stored. In 2008, the Bitcoin blockchain network was born as an alternative to traditional financial systems by combining cryptographic and distributed systems technologies that enable the transfer of value. Similar to physical money, with cryptocurrencies the asset is not replicated. Through a transaction, the value of the asset is transferred, so that once it is transferred, it acquires a new owner.

Programming the lifecycle of assets

Initially, Blockchain transactions focused on executing cryptocurrency transfer operations. However, as they have evolved, technologies such as Ethereum have arrived with which, by means of Smart Contracts, a programming layer is added to the assets modelled in Blockchain, the property of behaviour or even reaction to events. In this context, in addition to operating with cryptocurrencies, we can now model digital money or goods of any kind, and operate with them by defining a specific behaviour. In this way, the budget designated for a certain purpose can be configured in Blockchain and programmed so that the money is only used for the intended purpose. In addition, there is the ability to add different approvers for the execution of actions. Thus a budget could include an approval flow with multiple approvers, creating indelible and auditable evidence of approvals at all times.

With the presentation of different concrete applications in financial services, we have illustrated the power of Blockchain in the modernisation and optimisation of processes, contributing greatly to the reduction of time, risks and costs, and therefore having a direct impact on a better experience for end customers.

Blockchain technologies are constantly and rapidly evolving. They will be increasingly ready to cover more and more needs within all sectors, and in particular the financial sector where data granularity and personalisation of services make the difference in this highly competitive market.

With the support of an expert technology partner in this disruptive technology – such as atSistemas – companies in the financial sector can, through Blockchain, design, implement and measure solutions aimed at modernising processes. In this way, Blockchain is establishing itself as a pillar of trust, security and transparency.