With the advent of the internet, the 21st century’s next king could well be the blockchain. This next-gen technology is well-equipped to transform everything and disrupt every other industry. With blockchain, several issues caused by the internet can find a resolution. Thanks to the transparency and immutability offered by blockchain.
Today, almost every sphere of global business wants to progress by incorporating the latest advanced technologies. No wonder why blockchain has been the talk of the town lately. Even numbers support this statement. It has been estimated by Statista that blockchain technology revenue will grow massively in the coming years and the market is anticipated to reach a staggering $23.3 billion by 2023.
What’s more interesting is that the financial sector has more than 60% of the technology’s market value congregated in this field and has been one of the fastest to invest in blockchain. That brings us to the crux of the matter. Why does the Fintech realm need blockchain?
The Fintech sector is clouded with security issues
The Fintech industry is plagued with so many issues. Right from mutual distrust, cybercrimes, and fraud to operational inefficiencies, the number of problematic areas within Fintech has been growing at an exponential rate. Even cross-border transactions is an area of concern as it requires several layers of communication among the participants.
Well, trust is the biggest challenge that the industry is facing today. Most of the Fintech companies are not financially strong enough to develop a high- security system; thus, making people trust them with a secure financial product is nearly impossible.
Let alone Fintech companies. Even the common man needs security. A majority of people engage in daily banking activities and make online payments. Others are into crypto trading, investing in the stock market, and exchanging currencies online. All of them need a platform with maximum security.
While that is the big picture, let us dive a little deeper into the existing scenario. How will the Fintech sector get the monkey off its back and assist in enforcing a highly-secure environment for everyone?
Enter blockchain, the game-changer!
Known to be the revolutionary technology of the century, blockchain has immense potential to spruce up the existing processes of the Fintech space. From redefining the infrastructure of core banking systems to streamlining financial services, blockchain can change the whole game! Let us delve into more details.
Banking involves several intermediaries and third-parties; this puts the reliability and security of transactions in danger. What’s worse is that customers have to bear the cost of these services.
Blockchain can be utilized to make customer transactions and payments seamless. Since transactions happen over a secure blockchain network, it is not only safer and faster but also cheaper for customers and financial institutions. As per reports, with blockchain technology, investment banks could save over $12 billion annually in administrative and back-office costs.
Simplifying customer identification
Typically, with Fintech operations, KYC (Know Your Customer) regulations are imposed on financial institutions and they end up spending more than $500 billion in order to comply. The customer identification process goes through several steps and it impacts the business of financial institutions a lot.
Blockchain is the problem-solver in a way that it allows users to verify their identity and KYC themselves through a single platform. The independent verification process reduces the cost and effort required in the traditional KYC process through cross-institutional client verification.
Providing a decentralized mechanism
Most of the financial business structures follow the conventional centralized consensus model. A central party supervises and dictates all the business flows; this means that the higher-rank individuals in an organization can manipulate transactions for their own good. Centralized systems are also prone to security breaches that can lead to leakage of sensitive data thereby causing damage to the company and its customers.
However, blockchain’s strength lies in its decentralized ledger system that checks if every transaction is legitimate; this requires consensus from each node that forms a part of the blockchain network.
Creating a level-playing field
Companies such as Google, Facebook, Amazon, and Apple have dominated their respective industries and are also gaining through auxiliary markets including electronics, mobile phone applications, etc.
Blockchain helps in getting rid of this monopoly effect. With blockchain, startup companies can build their business model hassle-free. As nobody owns the rights to the blockchain, there will be healthy competition in the marketplace; prices will go down and customers can have more purchasing power.
Applications of Blockchain in Fintech
The Fintech industry is in dire need of blockchain technology. Now is the best time to get rid of all redundant and complex issues from the Fintech space and allow blockchain enthusiasts to innovate new applications and use cases to simplify the transactional processes handled. Here is a list of some blockchain applications that are well-known in the BFSI domain.
From authentication and verification to the storage of electronic records, blockchain solutions are being extensively used in the banking industry. Most importantly, the creation of the KYC utility can be simplified with the help of blockchain.
Supply Chain Financing And Management
With real-time tamper-proof information about the integral points in the supply chain, such as purchase order receipt, creditworthiness, invoice receipt, etc., blockchain-powered systems promote higher settlement turnaround time at very low costs.
Trustworthy Payment Solutions
The blockchain-powered distributed ledgers are encrypted and facilitate fast, cheap, and secure transactions and services. With real-time verification of transactions, banks and clearing houses do not need intermediaries anymore.
Simplification Of Remittance Process
The conventional remittance industry is fraught with issues such as high fees and long transaction approval time. Blockchain technology can simplify the entire process by removing the intermediary elements and implementing instant payment solutions.
Eliminating Audit Trails
Blockchain technology helps in maintaining a transaction ledger that is transparent and permanent. Banks don’t have to keep redundant audit trails as blockchain does not allow altering or manipulation of the records.
That’s a wrap!
While the Fintech sector is a tad too slow in embracing technological advancements, it is definite that financial services will evolve with time globally. No doubt, blockchain technology will get the ball rolling in a faster and more efficient way. From smart contracts, and digital payments to share trading, blockchain will reshape the whole Fintech market in the global economy. Well, if you are a Fintech enthusiast and want a reliable solution for your business ideas, drop us a line.