Blockchain in Fintech: A Catalyst for Disruption in Finance World
The finance domain, even after being a recipient of multiple technology integrations and advancements, continues to operate as a centralized model — with the center of the 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 technology. The technology has added another dimension in the Fintech landscape, the one that has evolved as a tech-based revolution in the financial sector. It has offered tremendous potential to the fintech industry by bringing significant changes to business models and operating processes.
Challenges In The Fintech Industry That Blockchain Addresses
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 turbulence 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, the Blockchain technology has again proved to be one of the fintech trends that can reduce the cost by nearly 50%.
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 towards 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 enter blockchain technology in financial services.
When a blockchain 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.
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 transactions-based documents and regularly check this database against each other for higher 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 a 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. Auditing
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 you partnered financial software development company to add the record directly in the ledger allowing an efficient way to stare and upgrade data.
5. 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.
Future Of Blockchain-based Fintech Market
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 was worth USD 231.63 Mn in 2017 and is anticipated to be valued at USD 6700.63 Mn by the year 2023, with a CAGR of 75.2% during the forecast period.
Also, as per the PWC’s study of financial services and fintech, it has been found that 77% of the financial industry is planning for blockchain adoption in financial services by the end of 2020. Additionally, the funding in blockchain-based fintech startups has also risen exponentially, with the investment value crossed $40 Bn in 2017 itself.
So, in case you are a fintech startup or establishment 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.
Originally Published On — https://appinventiv.com/blog/blockchain-and-fintech/
