Blockchain technology will pave the way for transparent and bank less financial services
Over the last few decades, technology and finance have converged to provide better experiences and streamline financial operations. The marriage between the two has given birth to financial technology (Fintech) and a myriad of disruptive innovations such as blockchain technology. Just like any other tech-centric sector, the Fintech sector is evolving continuously. As a result, we are seeing a host of innovations spring up each year. These innovations are playing an important role in restructuring and improving the different aspects of our traditional financial systems.
While these technologies work their magic, it is safe to say that millions of people have pinned their hopes on blockchain technology to transform the financial world in the future. We expect blockchain to play an essential role in propelling the growth of Fintech in the future. It means that the adoption of blockchain technology in the Fintech space will witness a steady increase in the upcoming years.
Today, we will shed light on blockchain’s role in the current Fintech space and what is in store for us in the next few years.
But before we get there, let’s get familiar with the terms Fintech and blockchain.
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What is Fintech?
Fintech, short for financial technology, is a field that encompasses the use of technology to improve, automate, or disrupt financial services and processes. Fintech companies often develop and offer digital or online financial products or services that aim to improve efficiency, convenience, and accessibility in the financial industry.
Some examples of fintech include mobile banking apps, peer-to-peer payment platforms, and online investment platforms. Fintech has the potential to revolutionize traditional financial systems and has attracted significant investment and attention in recent years.
What is blockchain technology?
Blockchain technology is a distributed database or ledger that allows multiple parties to record and verify transactions on a network without the need for a central authority. Each transaction is recorded on a block that is linked to the previous block, forming a chain of blocks. This structure makes it difficult for transactions to be altered or tampered with, as any changes would need to be made to all subsequent blocks in the chain.
Blockchain technology has the potential to disrupt a wide range of industries by enabling secure and transparent record-keeping and transfer of value. It is most commonly associated with cryptocurrencies, but it has many other potential uses as well.
Blockchain technology in fintech
We have waved 2022 goodbye and entered 2023 with a lot of excitement as far as Fintech is concerned. Over the last decade, numerous Fintech companies have catapult their way into the mainstream financial sector with great success. Their success can be attributed to the smart use of modern technology coupled with a strong focus on implementing customer-centric ideas to address the pitfalls of the current financial system.
Today, it is safe to predict that Decentralized finance (Defi) is the next big thing in the financial sector’s evolutionary path. Many notable financial companies have started investing large sums of money in blockchain and financial R&D. This trend indicates that blockchain and tech companies are likely to join hands to create a secure, user-centric, and seamless financial sector shortly. It is worth noting that the confluence of blockchain and fintech is detrimental to the success of Defi. Although blockchain and Fintech are not the same, there are plenty of overlapping applications in the current financial sector.
Are blockchain and fintech the same?
A lot of people, especially those who do not work in the financial space do not know that Fintech and blockchain are not synonymous with each other. Fintech and blockchain are not the same.
Fintech primarily means leveraging technology to enhance, disrupt, and automate existing financial processes and services. On the other hand, blockchain is a type of technology that paves the way for a more secured and transparent record-keeping and transfer of value.
Blockchain is essentially one of the numerous technologies that come under the Fintech umbrella. Besides, a company may use blockchain technology as part of its Fintech offerings, but not all Fintech companies may use blockchain.
How blockchain technology in fintech is a potential game-changer?
There is no doubt that blockchain has garnered immense popularity in recent years. That said, the technology is still in its infancy compared to some of the other technologies that are used in the current financial space. Blockchain technology, with huge potential, has emerged as the vanguard of a revolution in today’s financial world.
Here are a few ways blockchain in fintech could become a potential game-changer.
Transparent financial transactions
Financial transactions on the block can create peer-to-peer networks, lightning-fast transactions, and total transparency without the need for middlemen. The use of blockchain in finance goes beyond transparency. Users may regain complete control over their assets, opening the door to a fully democratic financial system with the use of blockchain technology.
Bankless financial management
Are banks going to become obsolete soon? Are we moving toward a bankless financial management ecosystem? Read along to find answers to these questions. At present, blockchain has enabled thousands of individuals from around the world to manage their finances without a bank. How?
Individuals who have invested in cryptocurrencies including Ethereum, Bitcoin, and more have done so via a blockchain digital wallet, without involving banks in the process. In this scenario, a private key safeguards the security of wallet holders. Further, every user also has a unique public address that enables them to send and receive payments.
Unlike traditional currency, in this case, all wallet holders with unique private keys are the sole owners of their assets. This is only possible thanks to blockchain technology. Here, the banks do not take the responsibility of securing your assets. There are already several projects working towards creating bankless financial systems using blockchain technology. It is still the early days for blockchain-based financial systems, and it is difficult to predict exactly how they will evolve.
Blockchain in fintech paves way for the KYC revolution
Today, identity and trust verification are primarily carried out by inexperienced and incumbent middlemen. Blockchain eliminates this problem. Blockchain technology in Fintech has the potential to transform the way users devote their trust to the financial system.
The entire know-your-customer or KYC process will see a notable change with blockchain. Customer information will be cryptographically stored after a single digital entry, eliminating the need for multiple verifications and entries. These game-changing innovations are yet to be seen across wholesale banking, conventional payment networks, lending marketplaces, equity crowdfunding more. However, this could change soon as the adoption of blockchain in Fintech continues to grow.
Transparent funding models
Do you know how a crowdfunding process works? Let’s run through the basics. Typically, it revolves around accumulating a large number of funds by asking multiple people for small amounts of money. In most cases, this is done online.
Blockchain, with IEO and ICRO, could play an important role to accelerate this process and make it more transparent. Today, ICOs have surpassed the interest in venture capital fundraising models worldwide. Upon close analysis of this trend, we can safely say that crowdfunding is heading toward a more transparent future.
Streamlined and transparent borderless payment with blockchain technology
Blockchain technology has the potential to make it easier to make borderless payments. As mentioned earlier, one of the main benefits of using blockchain for payments is that it allows for fast and secure peer-to-peer transactions without the need for intermediaries. This means that payments can be made directly from one person to another, regardless of their location or the currency they are using.
In addition, many blockchain-based payment systems use cryptocurrencies, which are digital assets that are not tied to any particular country or currency. This makes it easy to send and receive payments across borders, as the funds can be converted into any local cash as needed. There are already several blockchain-based payment systems in use today, and their popularity is growing.
For example, Bitcoin, the first and most well-known cryptocurrency, has been used to make millions of borderless payments. Other cryptocurrencies, such as Ethereum and Litecoin, are also being used for international payments. In a nutshell, the use of blockchain-based payment systems will likely continue to grow, making it easier for people to make borderless payments.
By now, it is very evident that blockchain will play an important role in shaping the financial sector in the future. It is just a matter of time before we see blockchain making a solid impression in both, the banking and the non-banking financial services space.
Financial institutions of all sizes should ask for assistance on how to incorporate and use this cutting-edge technology into their business model to define their targets for higher efficiency, cost-cutting, and customer satisfaction throughout the value chain.
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