The phrase “Transaction Settlement” sounds like two different concepts. But if we analyse it in detail, we find that transaction settlement is very much interrelated and interconnected. Before moving further, let’s try to get the idea behind transaction settlement.
A transaction is an economic event of business; it involves buying and selling of goods or services, or securities in exchange of money.
The settlement of transaction occurs when the buyer makes the payment and the seller must deliver the purchased goods or services, or securities within the agreed period.
There are institutions - such as banks and stock exchanges - where day to day trading is going on resulting in numerous transactions and hence, end to end settlement is needed. Any economic event or transactions forming part of Banks and Stock Exchanges should be very clear to all the parties involved in it. There are so many accounting processes and methods that are available well in use. But the problem is, too much time and energy is wasted just to incorporate correct data into the system. Sometimes sudden system failure can take a toll by erasing the valuable information. And also the technologies which are being used are ambiguous; moreover, customers are not able to know how all these financial transactions are executed.
There is a huge need to shift accounting processes and methods to a decentralised and digitalised form that is Blockchain.
Blockchain- especially designed to be a part of cryptocurrency - can be used for recording various financial transactions, and it is safe, fast and secure. This could reduce time and energy, with no additional cost, and being able to keep human errors at bay.
Blockchain is known as a distributed ledger, a digital database containing information for recording financial transactions which enables us to identify and track transactions digitally.
The main function of Banking sector is to transfer funds from one party to another. And blockchains are being specially designed to meet this very important financial need that is transferring funds. Blockchains could save huge processing cost, Banks run with an aim to reduce transaction cost and less amount of paperwork. The global financial system is colossal. At the same time it is very cumbersome to transfer money from one end to the other. Transferring money can take days or weeks to arrive at the target. The only reason being the huge involvement of the middlemen and each of which takes service charge. Blockchain will reduce the number of middlemen while increasing security and it will reduce extra cost. Blockchain will increase the value of money, which will increase cash flow and capital investment.
Looking forward to another institution, that is the Stock Exchange. Stock Markets all over the world are rapidly adopting blockchain’s inborn potentiality as a primary basis for market transactions. Blockchain offers huge aptitude for tracking and lending of securities, margin financing and monitoring systematic risk. Stock Market participants such as brokers and regulators, stock exchange has to go through a lengthy process, which takes four to five days at a stretch due to the role of intermediaries. Blockchain can make trading at stock exchange much more favourable through distribution and decentralisation form of recording. Moreover, there will be no need for a clearing house and auditors to verify the trading procedure. Essentially this technology pulls out the middlemen involved in the trading process.
Here, comes the advantage of Blockchain as it will massively reduce extra cost, time, and inefficiencies of the financial systems. Banks and financial institutions will surely be benefited with blockchain technology as it is the fastest, safest, secure and transparent form of technology.
If you are in search of a customized blockchain solution, reach out to our team at OneNet Blockchain