Fintech Organizations and the Need to Adopt Blockchain Technology
The public is tired of black boxes and wants to be able to control how to transfer their data and money by secure means. Blockchain is a technology that makes it nearly impossible to change or break into a system by allowing for the safe recording of information.
Challenges of the Fintech Industry
According to Statista, the expected spending on blockchain technology is 15.9 billion worldwide. Digital ledgers keep track of transactions and assets in a blockchain-based business network.
One of this technology’s most appealing features is its decentralized ownership, which is well-known for democratizing processes while providing security, transparency, and efficiency.
Blockchain conducts transactions between two people or tracks couriers’ custody. The platforms, designed to provide “accurate reporting, monitoring, and analysis of all forms of digital financial transactions,” are intriguing applications of this technology.
The fintech industry recognizes the impact of artificial intelligence services and blockchain technology’s transformative impact on increasing revenue, improving end-user experience, delivery process, and efficiency, and reducing risks in business operations.
Decentralized Finance (DeFi) is a new financial technology that uses decentralized smart contracts. DeFi companies that use blockchain technology provide an open alternative to traditional financial elements. People can now use stablecoins, eliminating the need for a mediator.
Missed revenue targets, protracted fundraising cycles, and increasing losses are all common challenges in the fintech industry, and they frequently result from poor management. The following are some of the issues that blockchain technology can help to solve in the fintech industry:
- Dependency on a centralized system
- No trustability
- Higher cost
- Slower process
Top 6 Uses of Blockchain in Fintech
As there are many benefits, many Fintech companies and startups will incorporate blockchain technology into their workflow. Their primary goals are:
- Banking and P2P transactions
- Regulatory compliance
- Digital identity verification
- Smart contracts
Banking and P2P Transactions
When it comes to transferring money or other assets, traditional banking has always been a time-consuming process. Two banks may take a long time to complete their transaction for a small sum of money. Money can be transferred in minutes when blockchain technology is used in fintech applications, regardless of the amount.
These peer-to-peer transactions take place using public and private keys only accessible to the two parties involved.
Furthermore, blockchain reduces commission fees for cross-border transactions significantly. It is necessary for developing countries where users can gain access to a variety of financial services.
Fintech companies frequently use blockchain technology to guarantee the utmost security of their assets. Each block in the chain in the decentralized ledger contains a hash that connects it to the previous one, making substitutions impossible.
Blockchain in finance has enabled the implementation of secure application code designed to be tamper-proof against malicious and third parties, making manipulation or hacking virtually impossible.
Blockchain technology eliminates the middleman in asset rights transfers, lowering asset exchange fees, providing access to broader global markets, and reducing the volatility of traditional securities markets. Moving securities to this technology could save $17 billion to $24 billion in processing costs per year globally.
Government, safety, and financial regulations are dealing with growing cyber crimes. Fintech companies can prevent fraud attacks by providing compliance using advanced technologies such as blockchain.
Once data is entered into the ledger, it cannot be changed or removed. Furthermore, each network action is tracked, with the ability to view an activity history.
Furthermore, the technology allows regulators to review original documents rather than numerous copies. Elliptic, for example, assists financial institutions and crypto businesses in protecting themselves from malicious cryptocurrency activities. It also aids in the enforcement of AML (anti-money laundering) regulations.
The immutability of the blockchain is reducing the possibility of errors and ensuring the integrity of records for financial reporting and audits.
Digital Identity Verification
One of the primary reasons a blockchain-powered digital identity verification system is one of the most popular fintech software solutions is the rising number of frauds in recent years. Customers, for example, can use blockchain for
- Personal identity management
- To manage finances
- To invest
- Share data via secure channels
- Digitally sign documents
Participants can read information stored in the blockchain ledger, create records, and send and track transactions. However, if your financial services company handles large amounts of sensitive data and must provide the highest level of security, it must establish network control.
Ethereum is a blockchain-based open-source distributed computing platform. Ethereum is a smart contract platform with its native token, “Ether” (ETH), representing digital money. It enables developers to create decentralized applications using a variety of programming languages such as Solidity, LLL, and Serpent.
A smart contract is a self-sustaining protocol implemented in computer code and managed by a blockchain that contains a set of rules under which the smart contract’s participants agree to cooperate. Smart contracts enable the execution of credible transactions without the involvement of third parties while maintaining security and credibility.
Fintech is one of the primary industries that will benefit from using Ethereum technology. Smart contracts facilitate card payments, currency exchange, same-day merchant settlements, and international and domestic money transfers. Blockchain fintech firms ensure that end users never have to worry about who is on the other end of the transaction.
Customers can use blockchain in fintech to create a digital fingerprint, which, like an actual fingerprint, can be used as a unique identifier. It can be kept on a distributed ledger and accessed by any bank in the network.
Trade finance continues to rely on paperwork circulated globally for information confirmation. Stock and share purchases must still go through a time-consuming brokerage, clearing, and settlement process.
It typically takes weeks because each trader must maintain their databases for all transaction-based documents and regularly cross-check these databases for greater accuracy.
Blockchain technology can simplify financial operations for both businesses and individuals. You can create a blockchain-enabled Fintech service to issue, buy, and sell various securities. They will be faster because you will not have to connect with third parties. It reduces the risks, expedites the settlement process, and improves trade accuracy.
Blockchain-based solutions will play a growing role in the Fintech industry. Companies will invest in blockchain startups and initiatives to ensure security, regulatory compliance, and fraud protection.
The blockchain-based fintech market will be worth USD 6700.63 million by 2023, growing at a CAGR of 75.2% during the forecast period.
This technology will be helpful for operational risk management (ORM) in cybercrime and geopolitics. Many Fintech companies are incorporating this technology into their mobile applications to improve customer service and enable digital payments, fund withdrawals, and other services via smartphones. (CW)