- Optimizing Fintech with Blockchain Technology
- Challenges in the Fintech Industry that Blockchain Addresses
- 1. Dependency on a centralized system
- 2. No trustability
- 3. Slower processes
- 4. Higher operational cost
- Ways Blockchain is Revamping the Fintech Industry
- 1. Banking and P2P payments
- 2. Trading and trade finance
- 3. Crypto lending
- 4. Regulatory compliance
- 5. Digital identity
- 6. Auditing
- 7. New crowdfunding models
- What are the Advantages of Blockchain in Finance?
- High-Performance and Scalability
- Use Cases of Blockchain
- 1. Asian Bank
- 2. Bajaj Finserv
- 3. J.P. Morgan
- 4. Swedish Central Bank
- Popular Blockchain Fintech Solutions
- Future of Blockchain in Finance Industry
- How can Appinventiv Help?
The fintech industry is recognizing the transformative impact of blockchain technology for generating more revenue, improving the end-user experience, delivery process, efficiency, and reducing risks in business operations.
Fintech, like any other tech-oriented industry, is in its evolving stage. Several new finance apps are now mushrooming up on a daily basis, offering better and new approaches to the processing and management of payments.
Fintech makes up the lion’s share in the blockchain market and for a good reason. The fintech blockchain market is expected to reach a valuation of $36.04 Billion by the end of the year 2028. Decentralized Finance (DeFi) would be an emerging financial technology based on blockchain that reduces the control of banks on financial services and money. Over the course of decades, we will also notice that digital ledgers will experience a transformation in how we receive, send, store and manage our money.
What is FinTech Blockchain?
Arguably 2022 is the era of fintech. Several fintech companies have already started thriving since the early 2000s, but over the last few years, companies have experienced massive success as they applied modern technology and customer-centric ideas for solving issues in the current financial systems.
DeFi or Decentralized Finance is the next step in that evolution that utilizes l decentralized smart contracts. Several financial giants have also started investing in blockchain in finance R&D for their business. This reinforces the fact that finance and blockchain companies are not necessarily at odds, instead they can complement each other greatly, thus furthering success.
DeFi is all about the merging of fintech with blockchain. Although the two are not exactly the same, there is a lot of crossover between the use cases in the financial sector. Blockchain for finance is known for its decentralized, distributed, immutable and transparent digital ledger technology, which offers a new type of security and freedom. DeFi companies with blockchain elements create an open alternative to everyday financial elements. This has removed the requirement of a middleman as people can now utilize stablecoins.
Read this blog to understand what is blockchain technology all about.
Optimizing Fintech with Blockchain Technology
The finance domain, even after being a recipient of multiple technology integrations and advancements, continues to operate as a centralized model – with the center being the financial institutions and governments. While an age-old tradition, financial service users have started doubting its value.
This doubt has given birth to a more transparent solution – Blockchain development services. The technology has added another dimension to the Fintech landscape, the one that has evolved as a tech-based revolution in the financial sector. It has offered the tremendous potential to the fintech industry by bringing significant changes to business models and operating processes.
This has made both startups and financial application development companies show an interest in exploring the need for blockchain in the fintech industry. Something about which we will talk about in this article.
But before we dive deeper into the niche market and look into how blockchain adoption in financial services is changing the complete story, it is quite necessary for everyone to be on the same page in terms of – What is Blockchain & how it works.
So, I suggest you take a look at our article explaining the basics of Blockchain before you scroll down. 👇
Assuming that you have been familiar with what is Blockchain by now, let’s move ahead to the Fintech challenges that this technology behind cryptocurrencies has resolved.
Challenges in the Fintech Industry that Blockchain Addresses
Challenges like missed out targets, long-fund raising cycles, and increasing losses are common in the fintech industry, which often happens due to mismanagement. Here is the list of challenges that blockchain technology can address in the fintech industry:
1. Dependency on a centralized system
Though fintech solutions offered a sense of convenience, the actual power has been still in the hands of third parties. The transactions are still being held with the acceptance of higher authorities only, with users waiting for getting a confirmation in their favor.
This is the first challenge that has been resolved with the advent of blockchain in fintech.
2. No trustability
When users perform any action on fintech applications, they are not familiar with what’s happening on the other side. This creates lots of confusion and raises fear of identity theft; ultimately resulting in lower trust in the process.
Blockchain application development services solve this fintech challenge with its characteristics of transparency and immutability.
3. Slower processes
Another reason why fintech needs blockchain is that the involvement of various third parties often delays the processes. This ultimately leads to lower satisfaction rates and higher turbulency in the business economy.
4. Higher operational cost
In the Fintech market, time is money. So, by cutting down the dependency on multiple people, making the process public to all, and reducing the time involved, Blockchain technology has again proved to be one of the fintech trends that can reduce the cost by nearly 50%.
While you might have got a hint of the role of blockchain in finance in the above section, let’s cover the impact of blockchain-driven decentralized finance (Defi) in detail.
Ways Blockchain is Revamping the Fintech Industry
When talking about the impact of blockchain technology in fintech, the best way to analyze and understand the effect is to focus on the key areas of the economy. So, let’s turn toward the subparts.
1. Banking and P2P payments
There are imprudent bureaucracy and indeterminate incompetencies in most banking setups, and these concerns are majorly pervasive in the clearing and settlement domains of the banks.
These gaps, which are created by the sheer primal ways of banking and the involvement of hierarchy at multiple levels, can be avoided if there is a decentralized system that follows different consensus algorithms for faster transactions – thus entering blockchain technology in financial services.
Accenture estimates that the role of blockchain technology in the clearing and settlement sectors of banking could save the biggest investment bank close to $10 billion. Furthermore, the Australian Securities Exchange has already executed a project to transfer its post-trade clearing and settlement to a blockchain system.
Today, banks are fully aware of the real benefits of blockchain in finance (use of digital currencies) over the traditional ones, such as lower transaction costs, faster transactions, etc. This is persuading all the financial bodies of the world to explore the possibility of making the shift to digital currencies and exploring blockchain fintech solutions.
Also, the payment system as we know it today is not absolutely efficient either, which calls for an alternative way of payments in which cryptocurrencies can be the solution.
Today, we have three major financial services available – internet payments or credit card payments, international money transfers, and providing banking services to the unbanked.
Firstly, we forget that the credit card was invented before the internet, and thus, it has been tailored for physical payments, rather than internet payments. Therefore, internet payments through credit cards pose three major issues, consisting of – high processing fees, fraud, and security concerns. These can all be very well taken down by blockchain adoption in banking and related financial services.
Secondly, the system of international payments is still standing at a very rudimentary stage. It is a closed and compartmentalized system. International payments generally take more than a day to process and can only be achieved during the opening hours of the payment agencies because before reaching their destination, your payments will transit through multiple banking systems having their own different processes. These steps notably increase the work of cross-checking data. And cryptocurrency is the answer to this.
When a blockchain mobile app development company works on the implementation of technology in fintech and banking, the problem of cross-checking data across different organizations involved in international funds transfers gets streamlined and easily authenticated over several levels of checks.
And finally, providing banking services to the unbanked – decentralized ledger technologies will provide the opportunity to the people who are unable to open bank accounts, to have access to banking services through their smartphones. As per a report issued by McKinsey, about 2.5 billion adults have no access to banking services, which is almost equal to half the adult population of the world. But a significant chunk of these groups is now equipped with smartphones. And smartphones can enable them to send or receive payments or give them direct access to microcredit.
2. Trading and trade finance
Trade finance is still relying on paperwork circulated across the globe for an affirmation of information, i.e., documents are still being posted or faxed. Stock and share purchases still have to pass through a hassle process of brokerage, exchanges, clearing, and settlement. This usually takes 3 days for settlement, but can be extended over the weekends since every trader has to maintain their own databases for all the transaction-based documents and regularly check this database against each other for higher accuracy.
The integration of blockchain technology in financial services in this domain can be used for giving traders an escape from burdensome checks of counterparties and optimizing the complete lifecycle. This reduces the risks associated, speeds up the settlement process, and enhances trade accuracy.
3. Crypto lending
Crypto lending introduces a new, efficient, and transparent lending process in the financial sector. The borrowers are able to keep their crypto assets as collateral for obtaining a fiat-based or stablecoin loan while the lenders give them the assets needed for the loan at a pre-agreed-upon interest rate. This also works in reverse. The borrowers sometimes use their stable coins or fiat currency as collateral to borrow the crypto assets.
4. Regulatory compliance
This is again one of the prime blockchain use cases in the fintech sector.
With global demand for regulatory services predicted to bolster in the upcoming years, fintech companies are adopting blockchain to upgrade regulatory compliances. They are relying upon this technology to track each and every verified transaction and record all the actions taken by the associated people so that regulators do not require to confirm the authenticity of the record. In addition to this, the technology is empowering regulators to review the original documents instead of manifold copies.
What’s more, the blockchain’s potential of immutability is helping with lowering the possibility of errors and ensuring the integrity of records for financial reporting and audits, along with decreasing the time and cost of auditing and accounting.
You may like reading: How Can Enterprises Navigate the Regulatory Compliance Landscape with Blockchain?
5. Digital identity
The number of fraudulent accounts remains on a constant rise. Although banks do have strict KYC and AML checks, it is not foolproof. The fact that there is no standardized documentation process that clients should submit to prove their identity, makes them all the more hack-proof.
Blockchain can help with a digital identity system. The clients can go through validation once and can then use them to perform transactions across the globe. On this front, blockchain can also help financial users:
- Manage identity data
- Share data with others minus safety risks
- Digitally sign documents like claims and transactions.
It is a process that verifies accounts and highlights any inconsistencies. The process is not just complex in nature but is also slow. The process, however, becomes easier with blockchain. Through the technology, you can ask your partnered blockchain application development company to add the record directly to the ledger allowing an efficient way to stare and upgrade data.
7. New crowdfunding models
The crowdfunding process revolves around raising funds by asking a large number of people for a small amount of money, usually online. Blockchain, through ICO, IEO, and other approaches makes the process of fundraising transparent and a lot speedy compared to the traditional funding models. I guess this is the reason why ICOs surpassed the interest in the VC fundraising model.
Now, as we know about the blockchain and fintech applications, it is likely that you are curious to know about its future. And eventually, take the right step. However, it is advisable to have clarity of what all fintech companies are using blockchain technology and how so that you can enjoy better results.
Moving forward, let’s discuss a few advantages of using blockchain in fintech. Later, we will discuss some of the real-life use cases of blockchain in fintech.
What are the Advantages of Blockchain in Finance?
Blockchain has enabled inclusive, open, and secure business networks that enable digital security to be issued within a short period of time at lower unit costs and a greater level of customization. Over the last few years, blockchain technology in finance has matured, demonstrating the following benefits:
Blockchain technology employs protocol, mutualizes standards, and shared processes, which act as a single share source of growth for the network participants. It improves data integrity and enhances the customer experience with faster processing.
Blockchain in finance has enabled the implementation of secure application code that is specifically designed to be tamper-proof against malicious and third parties, thus making it virtually impossible to manipulate or hack.
The immutable and transparent ledger makes it easier for various parties in a business network to manage data collaboration, and reach agreements. Blockchain is a distributed ledger system for recording, managing, storing, and transmitting transactions securely in a whole host of domains.
Blockchain in finance offers market-leading tools for data privacy across the different layers of software stacks, thereby allowing the selective sharing of data in the business network. This improves trust and transparency while maintaining confidentiality and privacy.
It supports the creation and execution of the smart contract- a deterministic and tamper-proof software that automates business logic, thus boosting better programmability, efficiency, and trust.
High-Performance and Scalability
Blockchain in finance consists of hybrid and private networks that are specifically engineered for sustaining hundreds of transactions per second. It fully supports interoperability between public and private change, thus offering businesses tremendous resilience and global reach.
Use Cases of Blockchain
Blockchain is bringing a radical change in the world of business with its characteristics of immutability, decentralization, distributed ledger, and transparency. With a clear understanding of the growth potential of blockchain integration into mobility solutions, blockchain development companies offer the best to its client. Let’s have a look at the real-life use cases of blockchain integration.
1. Asian Bank
Asian Bank took Appinventiv’s help in building a core banking platform that offers functionalities like wire transactions with crypto, buying and selling of cryptocurrencies, and utilizing other methods of payment like Ethereum and Bitcoin.
The platform also offers a custodial cryptocurrency wallet along with plastic cards. This helps users to add crypto funds and transact through the application or the application-issued plastic card. The diligent efforts of our blockchain and cryptocurrency experts led to over 50K crypto transactions for the bank.
2. Bajaj Finserv
Bajaj Finserv is the next-gen digital marketplace that connects both merchants and customers. The platforms offer affordable and easy finance options through flexible repayment options and low-interest rates.
For Bajaj Finserv, the Appinventiv experts first conceptualized the market understanding and competitor analysis and then went through the development process and then with the final deployment of the app.
3. J.P. Morgan
J.P. Morgan, on 12th April, 2021, stated that they have been leveraging the power of blockchain for improving money transfers. They are using blockchain technology for lowering the verification time needed for making large payments.
4. Swedish Central Bank
Swedish Central Bank has been experimenting with the release of its own digital currency known as e-krona, which is based on R3 Corda distributed technology. The Swedish Central Bank has actually taken a bold step towards creating a country-wide usable cryptocurrency.
Popular Blockchain Fintech Solutions
We.trade, the platform developed by IBM with 12 major European banks like CaixaBank, HSBC, Nordea, and KBC, is using blockchain as a single database that enables all the counterparties to access the same information regarding trade transactions and add a tint of security to the system.
Circle is another fintech startup that is letting users invest in different cryptocurrencies, such as Bitcoin, Stellar, Ethereum, Zcash, Litecoin, EOS, and Monero.
Another company that is disrupting the fintech ecosystem with the help of Blockchain technology is Robinhood.
The company has developed a mobile application that gives users an easy mode to invest in stocks, stock funds, cryptocurrencies, and more without any additional fee.
Also, the fintech company launched a crypto platform in 2018 that let users buy and sell digital currencies, including Bitcoin, Ethereum, Litecoin, and Dogecoin.
CryptoPay is also one of the fintech companies offering the best blockchain-based payment solutions. The company lets users convert their bitcoins into US dollars, British Pounds, or Euros, send them to friends or get a prepaid debit card to use for making purchases. This not solely gives users ease of currency exchange but also safeguards their money against fluctuations in the market.
LAToken is a crypto trading platform that bridges the gap between the real and crypto economy. It lets users trade bitcoins globally, invest in tokenization of assets, make an initial coin offering (ICO) out of their project, and more.
With this covered, let’s move on to the future of blockchain in finance.
Future of Blockchain in Finance Industry
Talking about the future of blockchain in fintech, the adoption of technology, and the use of blockchain in fintech is increasing significantly. The blockchain-based fintech market is expected to reach a valuation of USD 6700.63 Mn by the year 2023, with a CAGR of 75.2% during the forecast period.
Fintech blockchain applications will take the industry by a disruptive storm. In the future, it is not just banking, but non-banking financial services like asset and wealth management will also soon reap the benefits of this particular platform.
Financial institutions of different sizes should seek guidance for integrating and leveraging this advanced technology into their business model to create their own benchmarks of increased productivity, cost reduction, and customer delight across the value chain.
How can Appinventiv Help?
Have an amazing fintech app idea in mind? Let Appinventiv be your secure fintech app, development partner. We are eager to improve your customer experience, advance your efficiency and skyrocket your business performance with amazing future-proof technology.
So, in case you are a fintech-based business still wondering if it’s the right time to set the basis of tokenization of the finance industry, act now! Contact the fintech experts to discuss the opportunities and requirements, and make a successful future.
Frequently Asked Questions
Q. How Blockchain Tech is Revolutionizing Fintech?
A. Blockchain technology is revamping the fintech industry in myriad ways, such as by eliminating third parties, reducing operational time and cost, enhancing the identity verification process, etc. These and the other benefits of blockchain in finance are designed to help the sector transform digitally.
Q. Which Blockchain platform is best for the financial service industry?
A. Ethereum, Hyperledger Fabric, Quorum, Corda, and Ripple are some of the blockchain platforms that can be considered for revamping financial services. However, it is best to understand the potential of each and choose the platform that boosts your business growth.
Q. How to integrate blockchain in a finance app?
A. There are various ways to integrate blockchain into your finance app. However, they are quite complex and tricky. So, it is advised to turn towards leading blockchain and fintech applications development companies with sound knowledge of blockchain for the same.
Q. What is the difference between fintech and blockchain?
A. Blockchain is mainly designed for cryptocurrency applications and also for bitcoin. It is essentially a digital ledger of transactions that is duplicated and then distributed all across the computer system networks. Learn how blockchain can be implemented in different business processes in this blog.
Fintech, also known as financial technology is a kind of innovation that enables the integration of technology into banking and financial services. Fintech is revamping the entire finance industry as more and more businesses are now adopting fintech technology for streamlining their transactions.
Q. What are the 4 categories of fintech?
A. The top 4 categories of fintech include:
Fintech companies are now transforming the lending process. People now don’t need to turn to credit unions or banks for borrowing money. The fintech companies can directly make loans to the consumers can request loans online and get them approved.
2. International money transfers
International money transfers in the traditional process can be quite expensive. Banks and other traditional money transfer organizations charge almost 8% interest. With fintech, transferring money internationally incurs less expense and allows quicker money transfers.
Payments are another category of the fintech market. P2P payments have now made it easier to transact between individuals and organizations. Technologies like blockchain are the reason why companies can now process payments more cost-effectively than banks.
4. Equity financing
Fintech companies are now transferring to equity financing. Organizations in this category of the fintech market are now easily raising money for their business. Few companies work to connect vetted startups with accredited investors. Others utilize the crowdfunding model and allow anyone to invest in the new business. These companies have now simplified the fundraising process as everything can be done online.
Q. Is Bitcoin a fintech?
A. Cryptocurrencies like Bitcoin are a unique type of financial technology that has the potential to transform the vertical of the fintech sector; right from investment and trading to payments and lending.