How Blockchain Technology In FinTech Is Transforming The Financial Industry?
Category : Blockchain, Fintech / by Andrew
In recent years, the financial industry has experienced a colossal shift. A whopping 64% of the world’s active online population now uses at least one FinTech service, making it evident that FinTech is creating a huge difference. But what’s driving this revolution? The answer lies in blockchain technology, which has catapulted the industry to new heights.
With its unparalleled ease, revenue boost, high security, and improved user experience, blockchain has propelled the FinTech market even further. In fact, the FinTech market valuation has already reached a staggering USD 2.2 billion in 2022 and is projected to reach USD 93.3 billion by 2032.
One of the most significant blockchain innovations in FinTech is Decentralised Finance (DeFi), which has transformed the finance industry by empowering users and reducing the need for third parties. But what exactly is blockchain technology, and how has blockchain in FinTech turned out to be such a massive shift?
What is Blockchain Technology?
Blockchain technology is a decentralised digital ledger that records data on multiple computers (or nodes) and provides all participants with access to the same information.
Also known as Distributed Ledger Technology (DLT), Blockchain Technology stores information in blocks linked together in chains. These grouped blocks are validated using mechanisms such as proof-of-stake (PoS) or proof-of-work (PoW) for both efficiency and protection.
Key Features Of Blockchain:
Decentralisation: No single identity holds complete control due to the distribution of data across a complete network of nodes.
Immutability: The information placed in the blockchain can’t be modified due to its unique design. It works on a specific protocol that makes any alteration next to impossible.
Distributed Ledger: The database is synced and shared across different geographies and authorities. There is no single point of failure (SPOF) due to the distribution and maintenance of a single ledger’s copy from different nodes.
Encryption: The shared data is encrypted using hashing and cryptographic methods to ensure safe access by authorised parties.
This technology’s decentralised and transparent approach results in the development of secure, immutable records that are resistant to tampering.
What Role Does Blockchain Development Play In FinTech?
Blockchain-based financial services have significantly boosted FinTech innovation. Blockchain technology easily resolves traditional issues in finance systems such as high risk, lack of security, expensive maintenance, and inefficient operations. The best part is the elimination of reliance on conventional financial institutions like banks, which act as intermediaries for customers and businesses.
Particularly, DeFi technologies operating on blockchain have decentralised financial transactions, leading to improvements in accessibility, security, and ease by effectively combining FinTech with blockchain.
Common Examples of Blockchain Development In FinTech :
- Blockchain technology allows cross-border payments, remittances, peer-to-peer payments, etc. at less cost and faster speed than traditional methods. For example, Stellar allows instant peer-to-peer money transfers without any intermediates.
- With the help of smart contracts developed through blockchain, loan agreements are automated. As per the pre-mentioned conditions, small contracts automatically pay or refund without interference from middlemen.
- Insurance companies automate their claims processing with small contracts. According to the terms of the agreement, these small contracts carry out claim verification and payments without manual error.
- By creating decentralised and immutable records, blockchain brings efficiency to supply chain finance. Moreover, the operations become transparent, reducing the risk of fraud.
What Are The Benefits Of Blockchain In The Fintech Industry?
There are several benefits of blockchain technology in the FinTech industry; some of them are mentioned below:
Transparency
By creating a shared network and processes for all participants, blockchain offers exceptional transparency and visibility into transactions and data. This data integration also speeds up transaction processing.
Confidentiality
Blockchain technology enables highly selective data sharing using advanced tools, ensuring privacy, confidentiality, and security for both business and customer data.
Security
Blockchain technology provides high security when integrated into financial systems for transactions. This is mainly because the tamper-proof application code used in blockchain provides resistance to hacking, manipulation, and other malicious activities.
Programmability
The development and use of smart contracts backed by tamper-proof software facilitates automated business operations. It leads to enhanced programmability and efficiency for streamlined financial transactions.
Scalability
Blockchain networks in finance provide scalability and efficacy, allowing for multiple transactions to occur at the same time.
Reliability
Because of the security, immutability, and transparency of blockchain ledgers, businesses can easily gain the trust of their stakeholders. Blockchain allows smooth collaboration, data management, and agreement processes, ultimately establishing a high level of reliability.
Also Read: How Blockchain Is Revolutionizing the Fintech Industry?
What Are The Applications Of Blockchain In The Fintech Industry?
In order to understand the impact of blockchain in FinTech, let’s look into blockchain applications in FinTech:
Banking and Peer-to-Peer Payments
When it comes to clearance and settlement, conventional banking systems face inefficiency and high-cost issues. Blockchain allows access to decentralised, peer-to-peer payment networks that facilitate fast, secure, and low-cost transactions. It also eliminates fraud and risk in payment systems by bringing security, trustworthiness, and reliability.
Crypto Lending
Crypto lending provides both lenders and borrowers with liquidity and the flexibility to create new capital deployment and investment opportunities. Cryptocurrencies can be used as collateral for loans or for lending. Borrowers can obtain stablecoin or fiat loans using crypto assets, in which lenders demand pre-agreed interest rates in exchange for providing the necessary funds.
Auditing
Auditing is typically difficult, prone to errors, and time-consuming as it relies on manual data verification. However, blockchain simplifies data verification with its immutable and safe ledger of transactions, making the tracking process more efficient and accurate. Automation in the auditing logs updates and verifies the records to reduce the cost as well as save time.
Crowdfunding Models
Crowdfunding models such as Initial Exchange Offerings (IEOs) and Initial Coin Offerings (ICOs) presented by blockchain offer new ways to raise funds for projects. Its effectiveness, safety, and transparency attract investors from all over the world.
Asset Management
Blockchain has reformed asset and stakeholder management for private equity firms, capital markets, and real estate funds. The automation of funds, transaction transparency, and digitisation of portfolios have significantly enhanced the market.
Trading
Previously, trading services were based on manual paperwork. It resulted in a time-consuming and error-prone operating process. With the blockchain, trade finance is now digitised and automated in its transactions and other business operations, removing reliance on paper-based processes. Smart contracts and distributed ledgers eventually accelerate operations while eliminating the possibility of error in trade finance.
Digital Identity Management
Blockchain helps build a secure digital management system that helps with identity verification mechanisms and authenticating transactions. It not only reduces the risk of money laundering, spam, and related illegal activities. However, it also cuts the lengthy document collection and verification process through its advanced cryptographic techniques to share and manage data securely.
Conclusion
Indeed, blockchain technology is revolutionising the FinTech industry with its decentralised and secure solutions, setting new benchmarks by bringing transparency, reliability, and efficiency. Although challenges like scalability and energy consumption exist, the technology is rapidly evolving, and its potential far exceeds current expectations.
For businesses looking to harness the power of blockchain, working with a professional FinTech Development Company is crucial. Webcom Systems stands out as a leading expert in blockchain development, offering tailored solutions that enhance customer experience and streamline operations. With years of industry experience and a team of skilled developers utilising the latest technologies, Webcom Systems is well-equipped to help you integrate blockchain into your business effectively. Explore how blockchain can transform your business by partnering with us. Get in touch to know more.
