top of page

Blockchain & Fintech: A Winning Combination

Updated: Feb 4, 2022

I will delve into details about the topic but first thing first. Financial technology is one of the most widespread term used for research in the finance industry in present time. Financial Technology (FinTech) is the use of modern innovative technology in the field of finance. It is basically the use of innovative and disruptive technology for providing financial services.

But while working with any Fintech organization, the biggest challenge a consumer faces is of trust. Consumers are always creepy about using digital products produced by Banks or any financial institutes that involve exchange or transfer of money. I still see a lot of people that have mobile banking apps installed on their mobiles but aren’t using due to lack of trust on the network provider (data breach) or the storage of information in the mobile phone like login credentials that can be hacked later on if a mobile phone is lost or snatched. On the other hand banks and financial institutes are trying very hard to secure their products through usage of latest technologies stack along with securing the network. But it looks like the solution is not enough.

Now enter the world of Blockchain. Blockchain is inexpensive in terms of developing and also highly secure or“trustless” as we call it. As Blockchain is a series of immutable blocks, this allows companies to track the complete lifecycle of a financial transaction.

“The key interesting feature of the blockchain is its resistance to data modification and trackable transactions.”

Blockchain has given the opportunity to create secure and safe financial products and bring innovation in the financial sector. Blockchain has the potential to truly disrupt multiple industries and make the processes more democratic, secure, transparent, and efficient.

Smart Contracts In Blockchain

The introduction of smart contracts has been key in the development of FinTech. During the last decade, blockchain technology has been constantly evolving. Some of the most relevant products of this evolution are smart contracts.These are not something new, as Nick Szabo introduced the concept in 1994. Smart contracts can be defined as a computerized transaction procedure that performs the terms of a contract. This means that all the contractual clauses are embedded in the computer of the individuals performing the transactions. As these contracts are automatically executed when certain conditions are met (the codes in the algorithm that conform the smart contracts specify these conditions),there is no need for a central authority or third-party support for these transactions.

There are many different languages in which smart contracts can be coded, Ethereum being one of the most relevant to date. Ethereum has been proven to be extremely reliable when preventing the double spending problem, although, in order to attain this, a high level of difficulty is added. Currently, the platforms that support blockchain’s smart contract are Ethereum and Hyper ledger.

Impact of Fintech with Blockchain

Blockchain technology can be used to streamline the financial transactions. Some estimates have suggested that blockchain technology can help financial institutions to save at least $20billion in cross border payment, regulatory, and settlement cost.

In a study performed by PWC on financial services and fintech, about 77 percent of the financial services industry is planning to adopt blockchain by this year i.e. 2020. It is estimated that the global cumulative investment in FinTech will exceed $1.5billion in the next 3-5years (PWC,2019).

This is further supported by a similar estimation made by Strategic Advisor Jeff Koyen of 360 Blockchain (a company focused on investing in technologies that use blockchain) who predicted the growth of the blockchain market upwards of $7billion by 2022.

From the perspective of cutting down costs the expected savings are of around $15-20 million by 2022 along with clamping down on unrestrained bureaucracy in traditional banking, blockchain in the fintech industry is designed to make banking a more seamless and efficient experience for both banks and customers alike.

The use of blockchain can also be seen in the system of cross-border micro payments. Approximately 25% of the global remittance market is under the control of Western Union and MoneyGram. Blockchain fintech startups like Sentbe, Abra are catering to the needs of P2P micro-payments. This reduces the cost and the money lost as fees in making the ransfer via large portals.

Advantages of using Blockchain in Fintech

As we see the growing impact of the Blockchain in Fintech, there are also numerous advantages in using this technology in Fintech which are:

● It can easily detect fraudulent activity

● No single point of failure.

● It is almost impossible to make any changes to the transactions on the blockchain or to the blockchain.

● Smart contracts can be a useful mechanism in all financial transactions and the monitoring and regulation process can be reduced to mere writing a smart contract.

● Financial contracts and services cost can be minimized by up to 95%.

● It enables individuals and organizations to process transactions without the need for a third party or a central bank.

● It eliminates the risk of errors and duplication, and is consequently ideal for refurbishing a range of digital processes. The removal of intermediaries reduces the settlement time to mere seconds and the transaction time to minutes. It also enables transactions to be processed 24/7.

● It has also benefited banks by allowing them to more easily reconcile transactions. They can trace transactions more quickly and find errors in a timelier manner. This enables them to find errors before a transaction is completed. As a result, they will have the means to fix errors before they can cause a problem for the institution and their customers.

● Banks can benefit from blockchain with the use of digital currencies. They are now able to accept digital currency to complete a variety of transactions. With cryptocurrency, banks will be able to more easily clear and settle financial trades faster and more securely. Banks will also look to make digital currency as standard currency in the future.

● It will also help eliminate the dark tactics of the stock market such as stock tampering, processing time and charges, naked short selling, as well as commissions of all intermediaries.

Final Thoughts

We can clearly see now that there are many benefits associated with blockchain technology being used in Fintech. These benefits have allowed banks and financial institutions to provide better service as well as offer more security to customers.

With all these things in mind we can easily say that Blockchain and Fintech is a winning combination that is creating a great impact on global scale.

#blockchain #fintech #smartcontracts

38 views0 comments