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Blockchain will shape the future of banking, putting power back into consumers' hands, writes Stewie Zhu, founder and CEO of Distributed Credit Chain.
The relationship between financial brands and consumers is poised for radical change, giving people total control and vision of their finances.
Blockchain. It's becoming ever-more pervasive, across an increasing number of industries and sectors. Not since the arrival of the Internet has a technology promised to revolutionise so much of our lives.
At its core, the technology is rather simple. Imagine a digital list of transactions, without any sort of centralised control. Instead, it is completely decentralised, encrypting information that cannot be changed once added, and enabling users the highest level of security. Although it can sound complicated, blockchain is user-friendly and offers a world of benefits for the average consumer.
Already, it is transforming a variety of industries. Take real estate, where cryptocurrency is already replacing fiat currency – aka pounds and dollars. Just a few months ago in the UK,using the blockchain-based currency Bitcoin.
Blockchain will drive a radical shift in power away from big financial institutions and back to the consumer.
But its biggest impact is likely to be felt in the banking sector, where the relationship between financial brands and consumers is poised for radical change. In short, blockchain will allow people to have total control and vision of their finances – from their credit score and financial data, to their overall banking footprint – driving a radical shift in power away from big financial institutions and back to the consumer.
Why now? Because we have already witnessed the traditional lending system fail consumers.
Firstly, there's the issue of high transaction costs. Many peer-to-peer lenders charge additional fees for verified credit scores. Those three-digit numbers, which are so key to consumers, are currently held by centralised credit agencies. Their monopoly of the system means consumers are charged to see their own score, as well as give it to other institutions for their use, which becomes quite expensive when those consumers might need to request it multiple times.
In the future, banking will be a more inclusive, more consumer-friendly digital system.
Secondly, banking is renowned for its exorbitant interest rates. While annual percentage rates (APRs), the fee charged for borrowing, are somewhat regulated, around the world lending institutions canfor those people who don’t have access to credit. Often, these lenders need to turn a profit and there’s considerable risk with users with bad debt that find loopholes in the system to disappear without paying their loan back. With blockchain, however, these lenders would be able to keep good track of users, keep their information secure, and could therefore reduce their interest rates.
Lastly, there’s the issue of trust between brands and consumers. Think of the recent personal data scandals involving Equifax, J.P. Morgan, and Facebook. Trust in a brand can disappear within seconds if they lose or abuse customers' personal data. Worryingly, consumers don’t currently own their data – brands and businesses do. But, blockchain would put us back in control of this data, rather than big brands. Not only could it disrupt the increasingly severe level of financial cybercrime, but it would also allow people to easily access their data and give them control over the details that are made available to banks and brands, thus minimising the infiltration of outside threats.
Blockchain is set to revolutionise the relationship between consumers and brands. Nowhere is this more evident than in the world of banking. The old analogue system is transforming, and in its place will be a more inclusive, more consumer-friendly digital system – one that’s fit for the 21st century.
Stewie Zhu is founder and CEO of Distributed Credit Chain, the world’s first distributed banking public blockchain with a goal to establish a decentralised ecosystem for financial service providers around the world.