The blockchain boom has paved the way for a transformation of the financial world like never before. Digital financial instruments are selected from digital assets, smart contracts and programmable money with an exceptional level of connectivity and programmability between products, service assets and holdings.
Financial firms that adopt blockchain technology are likely to tap into underserved markets and improve their bottom line by removing some of the operational costs associated with traditional international payment gateways. Trending use cases for blockchain in financial services include capital markets, asset management, digital payments, and insurance.
So what drives companies to choose emerging technology to recalibrate the value chain? Is it limited to the flexibility to accommodate change, create a degree of centralization, or improve the business experience? Now, if we apply the principle of “modularity” within the hybrid cloud, each stage of adoption makes you rich in features by being native and consistent across the entire ecosystem and creating a synergized collective based on trust. , the “we” between traditional and contemporary.
Financial instruments as code [FIaC] is an idiom of modern transaction banking between market participants, making an expressive association between business functions and emerging technologies. This, in the process, creates and delivers “new products” to “existing and new markets”. FIAC is a collection of bundled offerings from high-tech companies that can create new shared revenue models in partnership with market participants. Platform companies bundle in-house and third-party services into their own bundles to their established customer base. Ecosystem providers accumulate data and build a larger, more stable revenue base by offering bundled services that reduce friction for the consumer and the ecosystem.
Currently, FIAC prepares for fundraising, credit and loans, Trade finance, Verification of digital identity, Accounting & Auditing, Hedge funds and P2P transfers. This removes regional barriers surrounded by data privacy regulations and integrates transactions into a single digital identity, which is updated in real time and accessible to all members of the network. Consumers will only need to register their identity once on the blockchain network to add and retrieve transaction receipts, a common ledger distributed across the network.
The most popular innovation in this area is Zero-Knowledge Proof [ZKP], several countries and large companies are now working on ZKP-based solutions. Fiac has an integrated rich application layer of a digital notary, automatic bill payment, real-time transaction recognition, secure loan processing, unique digital identifier, reliable international payments and secure, etc.
One of the central elements of Fiac is cryptocurrency, a vehicle with great prospects and potential to outperform conventional banking products while offering greater efficiency, less bureaucracy and more transparency.
Cryptocurrency in the system of financial instruments
The Office of the Comptroller of the Currency (OCC) said banks and savings associations could provide crypto custody services to customers, including holding unique cryptographic keys associated with accessing private wallets. Banks offer interest-bearing crypto accounts, where customers could invest the crypto on the back-end or through other financial tools, which are then used to transact Fiac products.
Banks use public blockchains, including Stable Coins, to speed up payment processes for Fiac products. Banks are/should be building trust in smart contracts by becoming a trusted third party that uses these smart contracts for mortgages, business loans, letters of credit or other transactions. In 2019, the Financial Crimes Enforcement Network (FinCEN) determined that all cryptocurrency transactions and custodial services must always comply with AML/KYC regulations. Currently, blockchain technologies automate AML and KYC verifications and are at different stages of maturity.
Regulators are concerned that not all crypto transactions are tracked for AML & KYC considerations, which could lead to illegal activities and scams on the network. Governments around the world do not want to have decentralized currencies out of their control, and many countries see it as a threat to their national currencies. The adoption and use of cryptocurrency continues to evolve through the regulatory lenses of countries, with some countries taking an approach to create their own national crypto, serving as a means of large-scale Fiac products.
The road ahead
Financial instruments as code will further stimulate the co-creation of the value chain by bringing together internal and third-party services in packaged offers in the market, also a derivative of Open Finance. Fiac will culminate within integrated finance, both for banks and non-banks, via real-time payments and trade finance. Embedded finance is the future of fintech, but there are already many exciting products on the market built with the principles of embedded finance. Fiac will shape Embedded Finance with a more interactive experience through IoT models, and that’s going to be something to watch.
The opinions expressed above are those of the author.
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