This video explores the many aspects of how bitcoin has the potential to disrupt our financial systems.
- Let's go deeper in exploring the financial industry impact of distributed ledger technology. According to Alex and Don Tapscott in Harvard Business Review, our global financial system moves trillions of dollars a day and serves billions of people. But the system is rife with problems, adding costs through fees and delays, creating friction through redundant and onerous paperwork, and opening up opportunities for fraud and crime. So how might distributed ledger technology help to fix these problems? It will be easy for members of the financial industry like banks, stock traders, lending agencies, mortgage brokers, and others to ignore cryptocurrencies as a passing fad.
They could push back in it knowing that cryptocurrencies have the potential to disrupt their business models, reduce costs and therefore revenues, and create enormous risk. But they would be wrong to do that. They know this now, and most are taking the topic seriously. For most of them, there is a recognition that blockchain technology could represent a market restructure. In fact, some are enthusiastically embracing distributed ledger technology despite the fact that many jobs could be lost, entire financial sub-industries could be redesigned or eliminated, and physical financial centers could hollow out.
The disruption that a new technology can bring to an industry isn't new. We only have to look at the impact of online media on newspapers, or e-commerce to brick and mortar retail. What we don't yet know is to what degree new opportunities will be created, new jobs will emerge, and what societal benefits may be enjoyed. Amazon.com is creating hundreds of thousands of new jobs, and Facebook has enabled millions of small businesses to emerge.
Perhaps blockchain technology will create new financial products and services, new job categories and skills, higher-quality consumer experiences, and reduce fraud and risk. In fact, a low barrier to entry could enable more people across the globe, particularly in developing areas, to participate in financial markets both as consumers and producers. Seamless electronic payment and receipt systems, easily available on all types of mobile devices, already enable e-commerce in undeveloped rural parts of the world.
Examples include WeChat in China, Zoto in Nigeria, and YellowPepper in Latin America. Blockchain may amplify and extend these benefits. A product called Ripple is reducing the time to send financial transactions cross-border. The qualities of a distributed ledger that enable this are a reduction of intermediaries, trustless connections between entities, and a secure and immutable record of all transactions. For financial services, creating a network of trust between a vast collection of disparate entities that doesn't require the enormous overhead of today's checks and balances is groundbreaking.
Together, these constitute remarkable efficiencies. Many financial services leaders cite efficiency as the top benefit. Let's take a look at blockchain in the mortgage industry. According to the big four consulting firm PWC, every stage of the mortgage process could be improved by distributed ledger technology. At origination, blockchain might help establish more accurate recordkeeping. At fulfillment, it could provide immutable proof that loan estimates were sent within three business days.
Smart contracts would speed up settlement flows. In the mortgage servicing process, blockchain could track the movement of payments, and in the secondary markets, it might provide transparency about the ownership of underlying assets. Better processes can help all stakeholders. Borrowers could see lower closing costs. Mortgage intermediaries can cost between one to two percent of a property's value. As we've seen, blockchain can eliminate intermediaries.
Better record-keeping could address fraud, a major challenge across the financial sector. The accuracy of loan information is essential. Maintaining high integrity in the flow of data across disparate networks can help servicers. For example, mortgage servicing rights, MSRs, could be transferred over blockchain. MSRs refer to a contractual agreement where the rights to service an existing mortgage are sold by the original lender to another party who specializes in the various functions of servicing mortgages.
Efficiencies and MSRs could enable benefits such as moving impaired loans to specialty services more quickly. So far, I've been saying that all these things might be possible. But who's actually using blockchain technology for mortgages? Factom, an Austin-based blockchain service company, has launched a product called Factom Harmony that's aimed at the mortgage industry. It uses blockchain technology to ensure that mortgage companies and their clients have complied with regulations, documents are securely preserved, and everything is easily accessible in the event of an audit.
Bank of China has a property valuation system for home loans based on blockchain technology. It uses the secure database capabilities of blockchain to provide quick property valuations for mortgage applicants in Hong Kong. Typically, when customers apply for mortgages, the bank hires surveyors to value the property being bought. But as different customers shop around for mortgages, the same survey work is often conducted multiple times on the same property.
Now, blockchain technology is used to list the latest valuations that can be verified and shared in a matter of seconds. For the final example, Nasdaq Linq enables an issuer to digitally represent a record of ownership. In addition, it reduces settlement time and eliminates the need for paper stock certificates. Issuers and investors can literally complete and execute subscription documents online. Settlement time can be reduced from the current market standard of three days to as little as 10 minutes.
This adds the net effect of reducing settlement risk by over 99%, dramatically reducing capital costs and systemic risk. Overall, the administration burden drops considerably. All these qualities make Nasdaq Linq, powered by blockchain, compelling and disruptive. You can bet other stock markets will likely follow, too. While many of these examples represent the innovators and leaders, and they are in varying stages of experimentation and production, the conclusion is clear.
Blockchain technology may have significant impact on the financial industry in remarkable ways in the months and years ahead.
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