Before diving deep into the topic of blockchain in Fintech, let’s first go over the nitty-gritty to ensure we are on the same page.
What is Fintech?
In Layman’s language, Fintech is the combination of Financial technology.
As we move ahead, we realize the power of technology. We also learn how it can make so many day-to-day activities easier in spaces we had never imagined.
Fintech uses its specialized software and algorithms on computers and smartphones to assist businesses, business owners, and individuals. It aims to manage its financial operations, processes, and lives in a better manner.
Earlier the word “fintech” was used to describe the technology used in the back-end systems of established financial institutions. Over the years, the meaning has changed. It is now a more consumer-focused service and hence has a consumer-focused meaning.
The term “fintech” currently refers to various fields and industries. We also use it in education, retail banking, investment management, non-profit fundraising, etc.
What is blockchain?
Blockchain is a system for storing data. Blockchain makes it impossible to make any changes, hack, or cheat the system.
It is a decentralized and irreversible database. Thus, making it easier to track all the assets and record transactions in a network.
An asset can be physical. For example, a car, money, and land. Or it can be intangible, like patents, copyrights, intellectual property, or branding.
In a blockchain network, practically anything of value is recorded by default and traded. Blockchain technology helps decrease the risk and adds more efficiency for all parties.
FUTURE OF THE BLOCKCHAIN IN FINTECH
The usage of blockchain in finance and its discussion is growing significantly. By 2023, the blockchain-based fintech market is anticipated to reach a value of USD 6700.63 million, growing at a CAGR of 75.2%.
Blockchain applications in the fintech sector will completely change the market. The benefits of blockchain technology are not limited to the banking sector. It expands to non-banking financial services like asset and wealth management.
It is time that financial institutions of all sizes should start looking for advice on how to combine and use this cutting-edge technology in their business model. This way, they can improve productivity, cut costs, and provide better customer satisfaction.
Why should you use blockchain in fintech ?
Since the early 2000s, many fintech businesses have developed. But recently, businesses have seen a huge success rate with new technology. Along with new technology, companies are also applying customer-focused concepts, helping them solve the current problems in the financial systems.
Advantages of using blockchain technology in finance –
1. Creation of digital ledger
According to Carlos Barbero Steinblock, blockchain is like an accountant’s general ledger. In a blockchain, blocks are equivalent to the pages in a ledger. In which transactions are recorded with time, date, and an explanation.
Hence a blockchain can digitally record the complete journey of money. As and how it flows and changes hands with the time and date of each transaction recorded chronologically. It creates this entire life cycle of money which is essential in banking industries.
Streamlining the process of recording transactions helps in saving time. It reduces the time needed to record ledgers and the cost of recording them manually.
2. Helps in protection against fraud
Blockchain technology is decentralized, making it impossible for fraudsters to cause any issues. In simple words, secure application code has been developed to create this protective layer against fraud. It means that nobody has control over the chain and cannot be changed. It makes you more responsible for transactions. Moreover, it ensures there won’t be any frauds or lessens the number of frauds.
3. Eliminating third parties from transactions
One benefit of blockchain’s increased security is that you can avoid using conventional fraud prevention strategies. They need several parties to confirm transactions.
Traditional financial transactions need to be approved by an authority. Be it processing your card payment by Visa or American Express. or having numerous individuals working in investment banks as transaction validators.
Many mishaps have occurred due to these layers. For example, in the year 2020, around $900 million payment was made mistakenly by Citigroup due to failures in their validation process.
All this would not occur if blockchain technology were used. Apart from its decentralized system
All transactions on it validate automatically. It is possible because all transactions are sent to all the nodes in the network for verification.
Hence using blockchain would help eliminate all these layers and make the process hassle-free.
Privacy
The best part about blockchain is that it provides industry-leading capabilities for data privacy across the various software stack layers. It enables the selective exchange of data in the business network. It increases openness and transparency while preserving privacy.
Use Cases of Blockchain in fintech
Blockchain is transforming the corporate sector with its immutability, decentralization, distributed ledger, and transparency. Blockchain development companies offer the best to its client. Let’s examine some real-world examples of blockchain integration in action.
1. J.P. Morgan
On April 12, 2021, J.P. Morgan declared that they had started using blockchain technology to enhance money transfer. Their primary aim is to reduce the time needed for large payments to be verified using blockchain technology.
2. Swedish Central Bank
Swedish central bank has taken its game to the next level by developing a cryptocurrency usable throughout the nation. E-krona is the name of their own digital currency. Which is based on R3 Corda distributed technology.
3. We.trade
Blockchain is used as a single database by We.trade, a platform created by IBM alongside 12 major European banks like CaixaBank, HSBC, Nordea, and KBC. It increases system security by providing all the counterparties access to the same information about trade transactions.
4. Chainalysis
Chainalysis, a New York-based company, assures that customers carry out secure and legal crypto transactions through its data platform. To avoid suspicious funds, they do thorough studies on various transactions, tracing money back to its sources and maintaining the confidentiality of each trader’s identity. It also helps customers meet the legal requirements set forth by banks, law enforcement authorities, and other financial organizations.
You can also learn about blockchain wallets.
Conclusion
Blockchain is more than a technology. It also represents a fundamentally unique approach to data that will change how many industries functions. Regarding blockchain fintech, we expect the industry to reach US$451.6 million in the United States by 2022, which is just the start!
