Exploring Fintech Blockchain: Revolutionizing Financial Services
In the past decade, technological advancement has catapulted the fintech sector, propelling it to the forefront of of financial services. The growth has been rapid and strong, driven by the strong performance of the banking sector, rapid digitization, evolving customer preferences, and growing support from investors and regulators.
The valuation of the fintech blockchain market is projected to reach $36.05 billion by the end of 2028. With a wide range of new finance applications emerge daily, the fintech sector is expected to present continously innovative methods for processing and overseeing payments.
What is Fintech Blockchain?
Several major financial institutions have also begun investing in R&D for blockchain technology in the financial sector. This highlights the symbiotic relationship between finance and blockchain technology, showcasing how they can complement each other to enhance overall success.
Fintech companies often witness the tangible rewards of blockchain, which challenges its reputation as an abstract concept. For them, blockchain streamlines instead of adding complexity.
DeFi, or decentralized finance, revolves around the convergence of fintech and blockchain technology. Blockchain technology in the finance industry is renowned for its decentralized, distributed, and transparent digital ledger. DeFi provides a new level of security and freedom.
Blockchain automates operational processes through smart contracts - sophisticated algorithms that are activated by predetermined conditions - to eliminate the need for certain intermediaries and improve budget efficiency.
Blockchain’s allure to fintech is further enhanced by its advanced security measures. Known for its ability to streamline financial transactions, it facilitates direct peer-to-peer transactions and real-time settlements across borders, reducing delays and costs. In addition, its data management capabilities provide excellent traceability and accountability. The system’s tamper-proof records guarantee data integrity, safeguarding against fraud and instilling customer trust.
Read this article to find out more about blockchain technology use cases in the fintech sector.
Benefits of Blockchain in Fintech
2022 is inarguably the era of fintech. Many fintech companies have seen significant growth in recent years by leveraging modern technology and consumer-centric approaches to address challenges in the financial industry.
Let’s unravel how blockchain is revolutionizing the fintech industry.
Banking and P2P payments
Many banking setups experience inefficient bureaucracy and widespread incompetence, particularly in the clearing and settlement domains.
By implementing a decentralized system that utilizes various consensus algorithms for quicker transactions, the gaps caused by traditional banking practices and hierarchical structures can be eliminated. This is where blockchain technology comes into play in the realm of fintech services.
According to Accenture, the utilization of blockchain technology in the clearing and settlement sectors of banking has the potential to generate cost savings for the largest investment bank, amounting to nearly $10 billion. In addition, the Australian Securities Exchange has successfully implemented a project to migrate its post-trade clearing and settlement to a blockchain system.
Today, banks have a deep understanding of the significant advantages that blockchain technology brings to the financial sector, including reduced transaction costs and faster transaction processing. This encourages financial institutions worldwide to consider the potential of adopting digital currencies and exploring fintech solutions based on blockchain technology.
Trading and trade finance
Trade finance continues to depend on the physical distribution of papers worldwide to verify information, meaning that documents are still being sent via mail or fax. Acquiring stocks and shares still involves a cumbersome process that includes brokerage, exchanges, clearing, and settlement. The settlement process typically takes three days, however it may be prolonged during weekends due to the traders’ need to maintain individual databases for transaction-based papers. These databases are regularly cross-checked to ensure greater accuracy.
Blockchain technology can be implemented in the fintech sector to provide traders with a means to avoid time-consuming verification of counterparties and streamline the entire lifecycle process. These benefits include reducing associated risks, expediting the settlement process, and improving trade accuracy.
Regulatory compliance
Due to the anticipated increase in worldwide demand for regulatory services, fintech companies are implementing blockchain technology to enhance regulatory compliance. The technology is used to monitor and document every validated transaction and all actions performed by the individuals involved. This eliminates the need for regulators to independently verify the accuracy of the records. Furthermore, the technology enabling regulators to examine the actual papers rather than several duplicates.
In addition, the blockchain’s capacity for immutability is aiding in reducing the likelihood of errors and guaranteeing the integrity of data for financial reporting and auditing purposes, while also diminishing the time and expense associated with auditing and accounting.
Digital identity
The prevalence of fraudulent accounts continues to be on the rise. While banks do implement rigorous Know Your Customer (KYC) and Anti-Money Laundering (AML) checks, these measures are not infallible. The absence of a defined documentation method for clients to provide verification of their identity enhances their resistance to hacking attempts.
Blockchain has the potential to enhance a digital identity system. Once the clients have gone through validation, they can utilize it to conduct transactions worldwide. In this regard, blockchain technology can also assist users:
- Manage identity data
- Share data securely with others
- Utilize digital signatures to authenticate documents such as claims and transactions
Popular Blockchain Fintech Use Cases
We.trade
We.trade, a platform created by IBM in collaboration with 12 prominent European banks including CaixaBank, HSBC, Nordea and KBC, utilizes blockchain technology as a unified database. This allows all parties involved in trade transactions to access and share the same information, enhancing the security of the system.
Circle
Circle is a finance business that enables users to invest in various cryptocurrencies, including Bitcoin, Stellar, Ethereum, Zcash, Litecoin, EOS, and Monero.
Robinhood
Another company that is disrupting the fintech ecosystem with the help of blockchain technology is Robinhood. The company has created a mobile application that provides customers with a convenient way to invest in stocks, stock funds, cryptocurrencies, and other assets without incurring any extra charges.
Wrap up
Fintech blockchain applications will cause major changes in the overall financial industry. In the future, non-banking financial services such as asset and wealth management will also experience the advantages of this specific platform, in addition to banking.
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