The current process for clearing and settlement is wasteful – and blockchain tech is poised to change that. The results will be a net gain for everyone -- not just for businesses, but for consumers as well.

We tend to take our daily transactions for granted. It’s as simple as swiping your credit card or depositing a cheque, right? Wrong. It only seems that way. In truth, every transaction you make is simply a promise. Once the promise is made, a clearing house steps in to facilitate and  settle the promise .

The clearing house consists of a plethora of middlemen. They ensure that the finality & settlement of the promise made. And in return for their good-deed, they charge you hidden fees. Ding!

Businesses have to endure these unnecessary fees as well – but on a grander scale. They trade securities that have various risks managed by the clearinghouse. This leads to higher fees. Businesses are then forced to pass these costs down to their consumers.  Ding!

We essentially get Double-Dinged!  But wait – it doesn’t end there. Since we’re getting double-dinged, we have less money to buy stuff. And because we have less money to buy stuff, businesses lose profit. Businesses now have to either increase prices or close shop. As you can see, it’s just one never-ending loop of economic waste!

However, eliminating the middlemen like settlement Clearing houses has been all but a fantasy… until the advent of blockchain technology.

Our current models of eCommerce are facing a hasty demise. Enterprises have been swift to leverage blockchain clearing and settlement solutions. The efficiency and cost savings that the technology delivers has been far too enticing to ignore.

Traditional methods of clearing and settlement rely on middlemen to facilitate trust & security. But the friction is so severe that it can take weeks to settle a single transaction.

However, blockchain and distributed ledger technology provide trust & security without  a middle man. This reduces friction and costs for all parties. Furthermore, transaction settlement is conducted within seconds! The resulting cost savings are massive – which are then passed down to consumers.

Across the globe, big name firms and established players have been experimenting with blockchain and distributed ledger technology. The list extends from one end of the world to the other

USA based Broadridge Financial Solutions will be using blockchain trade settlement in the repo market.  Broadridge believes that blockchain technology can

1. Reduce counterparty risk

2. Eliminate wasteful manual intervention

3. Streamline current processes for confirmation

4. Increase audibility, and transparency

London based SETL already utilizes a blockchain platform for settlement of payments. They empower participants to deploy their own blockchain within minutes.

In 2016, India based uTrade was the first Indian company to  employ a blockchain technology for trade settlement. Their “uClear” blockchain platform allows for real time clearing and settlement of securities.  Fast forward to 2018, and we have the Security and Exchange Board of India (SEBI) have begun exploring blockchain technology for trading the stock market.

The Australian Securities Exchanges (ASX) isn’t interested in falling behind either.  ASX will be launching their blockchain based financial services by 2021. The goal is to allow stockbrokers & fund managers to use the blockchain for real-time settlement and tracking.

Established processes and policies have firm roots in modern day operations. Uprooting these policies and redistributing resources will be the biggest challenge firms will face. Change is not easy – and will face strong resistance and certain junctions. Furthermore, the technology itself requires to be battle-tested some more. The complexity combined with the shift in mindset may cause onboarding issues.

Even with the political and regulatory resistance, the adoption of the technology has been moving forward. As understanding increases, decision makers will be coaxed into action by the following advantages:

1. Drastically reduced transaction costs

2. Near instant settlement and clearing

3. Easier Risk management

4. Increased Transparency

Blockchain technology is paving the way for a financial revolution that eliminate a lot of economic waste.