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The blockchain market's largest share is held by Fintech, and this is for good reason. By 2028, the fintech market will be worth $36.04 billion.
Decentralized Finance (DeFi), a new financial technology that uses blockchain to reduce the influence of banks over financial services, would be a financial technology that will also use blockchain. We will see a shift in the way we receive, send, and store our money over the next decades.
What's FinTech Blockchain?
Fintech is poised to enter a new era in 2022. Many fintech companies have been thriving since 2000. However, over the past few years, many companies have seen huge success by applying modern technology and customer-centric solutions to solve problems in current financial systems.
DeFi, or Decentralized Finance, is the next rising star in that evolution that uses decentralized smart contracts.
Many financial giants have started to invest in blockchain to finance R&D. This confirms that blockchain and finance companies do not have to be at odds. They can actually complement each other, thereby enhancing their success.
DeFi is about the integration of blockchain and fintech. While they are not the same thing, there is much overlap between their use cases in financial services.
Blockchain for finance is well-known for its distributed, decentralized, immutable, transparent digital ledger technology. This provides a new level of security and freedom. Blockchain elements in DeFi companies create an open option to traditional financial elements.
Stablecoins can be used directly by the users, eliminating the need for a middleman.
This blog will explain what benefits blockchain technology is offering to the fintech industry.
Optimizing Fintech with Blockchain Technology
Even after receiving numerous technology advancements and integrations, the finance domain continues to function as a central model.
The center is the financial institutions and government. Although it is an old tradition, many financial service users are beginning to question its value.
This has led to the creation of Blockchain development services.
Fintech has gained another dimension with the technology, which has been described as a tech-based revolution within the financial sector. It has brought significant changes to operating models and business models in the fintech sector, which has opened up new avenues for the industry.
Both startups and financial app development companies have shown interest in exploring blockchain's potential role in fintech.
This is something we'll be discussing in this article.
Before we get into the details of blockchain adoption in financial services, it is important that everyone understands what Blockchain is and how it works.
Let's assume you are familiar with Blockchain. Now let's get to the Fintech problems this technology has solved.
Fintech Industry Challenges that Blockchain Addresses
In the fintech industry, mismanagement often leads to problems such as missed targets, delayed fundraising cycles, and growing losses.
Here are some of the challenges blockchain technology can solve in the fintech sector:
1. Dependence on a central system
Fintech solutions offer convenience but the real power is still held by third parties. Transactions are still being held subject to the approval of higher authorities, and users are still waiting for confirmation.
This is the first problem that blockchain has solved in fintech.
2. Trustability is not possible
Users are often unaware of what is happening on the other end when they perform any action via fintech apps. This causes confusion and increases fear of identity theft, which ultimately leads to lower trust.
This fintech problem can be solved by blockchain solutions. Its characteristics of transparency, immutability, and transparency are key features.
3. Slower processes
Fintech also needs a blockchain platform because third-party involvement often slows down processes. This results in lower satisfaction rates and more turbulence in the business economy.
4. Operational costs are higher
Time is money in the Fintech market. Blockchain technology is a Fintech trend that reduces the dependence on multiple people, makes the process transparent, and reduces the time it takes to complete.
You might have gotten a glimpse of the role blockchain networks play in finance by reading the previous section.
Let's now discuss the impact of decentralized financial technology (Defi).
The Fintech Industry is Reviving with Blockchain Platform
The best way to understand and analyze the impact of blockchain technology on fintech is to concentrate on key economic areas.
Let's now move on to the subparts.
1. Bank and P2P payments
In most banks, there is indeterminate bureaucracy and imprudent incompetence. These concerns are especially prevalent in clearing and settlement.
These gaps are caused by the nature of banking and the involvement at multiple levels of the hierarchy. It is possible to avoid these gaps by creating a decentralized system that uses different consensus algorithms for faster transactions.
This allows you to use blockchain technology in financial services.
Accenture projects that blockchain technology could help save the largest investment bank nearly $10 billion by allowing it to be used in clearing and settlement banking.
The Australian Securities Exchange already has a project underway to move its post-trade clearing, settlement, and settlement to a Blockchain system.
Banks are now fully aware of the true benefits of blockchain technology in finance (using digital assets instead of traditional ones) such as faster transaction times, lower transaction costs, and so forth.
All financial institutions around the globe are now encouraged to look into the possibility of moving to digital currencies and explore fintech solutions.
The current payment system is also not efficient. This calls for an alternative method of payment. Cryptocurrencies could be the solution.
We have three main financial services today - international money transfers and internet payments, credit card payments, and international payments.
First, the credit card was created before the internet. It is therefore designed for physical payments and not internet payments.
The main issues with internet payments via credit cards are high processing fees, fraud, and security concerns. These issues can be easily addressed by the adoption of Blockchain banking and related financial services.
The international payments system is secondarily still in its infancy. It is a closed system that has been compartmentalized.
International payments can take longer than one day and cannot be made during normal business hours. Your payments will pass through multiple banks with their own processes before they reach their destination. This increases the amount of work involved in cross-checking data.
This is where cryptocurrency comes in.
Blockchain product development companies work to implement technology in banking and fintech.
This solves the problem of cross-checking data between different organizations involved in international money transfers.
Finally, banking services will be available to the unbanked. Decentralized ledger technology will allow people who cannot open bank accounts to access banking services via their smartphones.
McKinsey reports that about 2.5 billion people lack access to banking services. This is nearly half of the global adult population. A significant portion of these people has smartphones. Smartphones can be used to make and receive payments, or to give access to microcredit.
2. Trade finance and trading
Trade finance still relies on paper being circulated around the world for confirmation of information. Documents are still being faxed or posted.
Stock and share purchase transactions still require a complicated process of clearing, brokerage, and settlement. Settlement usually takes three days, but this can be extended to weekends because every trader must maintain their own databases of transaction-based documents.
They also need to regularly compare these databases with each other for greater accuracy.
Blockchain technology can be integrated into financial services to give traders the ability to bypass burdensome counterparties checks and optimize the entire lifecycle.
This reduces risks, speeds up the settlement, and improves trade accuracy.
3. Crypto lending
The financial sector has embraced crypto lending as a transparent and efficient way to lend money. Borrowers can use their crypto assets to secure a fiat-based loan or stablecoin loan, while lenders provide the assets required for the loan at a predetermined interest rate.
It can also work in reverse. Borrowers sometimes use their fiat currency or stable coins as collateral to obtain crypto assets.
4. Compliance with regulations
This is a prime example of blockchain usage in the fintech sector.
Fintech companies are using blockchain to improve regulatory compliance, as the demand for regulatory services is expected to increase in the future.
This technology is used to track every verified transaction and to record all actions taken by associated persons. The technology also allows regulators to view the original documents and not multiple copies.
The blockchain's immutability potential is also helping to lower the risk of errors, ensure the integrity of financial reports and audit records, and decrease the cost and time of accounting and auditing.
5. Digital identity
There is an increasing number of fraudulent accounts. Although banks have strict KYC/AML checks, they are not foolproof.
Hack-proof banks are made more secure by the fact that there is no standard documentation that clients must submit to prove their identity.
Blockchain is a way to create a digital identity system. Clients can undergo validation once, and then can use them to transact anywhere in the world.
Blockchain can also be used to assist financial users.
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Manage identity data
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Sharing data with others is possible without safety risks
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You can digitally sign documents such as claims and transactions.
6. Auditing
This is a process that verifies accounts and highlights inconsistencies. It is complex and slow. Blockchain makes the process much easier.
You can use the technology to ask your partner to add the record to the ledger, thereby making it easier to upgrade and stare at data.
7. New crowdfunding models
Crowdfunding is a way to raise funds. This involves asking large numbers of people for small amounts of money online.
The process of crowdfunding is transparent and faster than traditional funding models thanks to ICO, IEO, and other methods. This is why ICOs have outperformed the VC funding model.
You are probably curious about what the future holds for blockchain and fintech applications. You will eventually take the right steps.
It is important to understand how fintech companies use blockchain management so you can get better results.
Let's now discuss some of the benefits of blockchain in fintech.
What Are the Benefits of Blockchain in Finance?
Blockchain technology has made it possible to create inclusive, open, and secure business networks. This allows digital security to be issued in a shorter time, at a lower unit cost, and with greater customization.
The following are some of the benefits that blockchain technology has brought to finance over the past few years:
1. Transparency
Blockchain technology uses protocol, standardization, and shared processes to increase the growth of all network participants.
It increases data integrity and improves customer experience through faster processing.
2. Security
Blockchain has made it possible to implement secure application codes that are tamper-proof against malicious or third-party parties.
This makes them virtually impossible to hack and manipulate.
3. Trust
Blockchain makes it easy for business networks to collaborate on data and reach agreements. Blockchain is a distributed ledger system that records, manages, stores, and transmits transactions securely across a variety of domains.
4. Privacy
Blockchain in finance provides market-leading tools to protect data privacy at all layers of the software stacks.
This allows for selective sharing of data within the business network. This increases trust and transparency while protecting confidentiality and privacy.
5. Programmability
It allows you to create and execute smart contracts. This is a deterministic, tamper-proof, software that automates business processes.
6. Scalability and High Performance
Blockchain is a combination of private and hybrid networks, which are designed to support hundreds of transactions per second.
Blockchain enables interoperability between private and public change. This allows businesses to be resilient and has a global reach.
7. Instant Settlements
Transactions can be completed in minutes or seconds. Currently, settlements can take over a week. Blockchain allows settlements to be user-optimized.
This will allow both parties involved to save significant time and money. Blockchain will eliminate the need to have a lot of back and middle office staff at banks as transactions can be settled instantly.
Banks have a strong drive to explore Blockchain in order to improve settlements. Some banks look at internal options first while others go between banks first.
8. Improve Capital Optimization
Blockchain's main feature is its ability to eliminate the need for trusted intermediaries and make peer-to-peer transactions possible.
Blockchain could be used in financial services to eliminate fee-charging intermediaries like custodian banks (those who transfer money between banks) and clearers (those who vouch for counterparties' credit positions). Blockchain allows for better capital optimization due to significant reductions in operational costs. Additionally, banks can share a Blockchain.
This means that the total cost of the Blockchain and its surrounding ecosystem may be greater than the individual transaction costs. The costs of the Blockchain are shared by all banks, which results in a significant reduction in cost.
9. Reconciliation and reduced error handling
Blockchain's key feature is its immutability. A blockchain allows data to be tracked in real-time, leaving a detailed audit trail.
It eliminates reconciliation and error handling.
10. Crisis: Increased Financial Solutions
Crypto or digital currencies and tokens offer more options for financial solutions during times of crisis. The solution to the Bitfinex hack was to compensate customers who were all equally affected by the loss with a tradeable Recovery Right Token.
Each token could be considered an IOU and was valued at $1. If customers did not believe in Bitfinex's recovery or wanted to make profits, they could trade the token in the crypto exchange at the crypto market's price.
Or they could exchange it with equity (which was the case with almost half of all tokens), or Bitfinex would buy them back for $1 in the future. Bitfinex has resumed normal operations after a drop in the RRT's price to $0.30. Blockchain is a great example of a new financial solution.
Without it, Bitfinex could have gone bankrupt and all its customers would have lost their money.
What are the Main Use Cases for Blockchain in FinTech?
Blockchain has many advantages, including reducing transaction fees. A $10,000 international transfer could cost $200, with all fees and currency losses, but blockchain costs less than $1.
It greatly reduces or eliminates delays in international online payments. Additionally, it makes financial processes more transparent, safer, and immutable.
A second benefit is the ability to increase democracy and openness in financial service provision by making these services accessible to the "unbanked".
Those who do not have access to the banking system in their country. Smart contracts also eliminate paperwork by automating currency transfers after certain conditions are met. It can also significantly lower the carbon footprint over time, which is better for the environment.
The Future of Blockchain in the Finance Industry
The future of blockchain technology in fintech can be discussed by talking about how the adoption and use of blockchain are growing.
With a CAGR of 75.2%, the blockchain-based Fintech Market will reach USD 6700.63Mn by 2023.
The industry will be rocked by fintech blockchain applications. Private blockchains will soon be used for non-banking services such as asset and wealth management.
Different sizes of financial institutions should seek guidance in integrating and leveraging advanced technology into their business models to set their own benchmarks for increased productivity, cost reduction, and customer delight throughout the value chain.
How can we help in your Blockchain app development?
Do you have a brilliant idea for a blockchain-based fintech app? CIS is your trusted blockchain development firm.
CIS is eager to enhance your customer experience, increase efficiency, and skyrocket business performance using amazing future-proof technology.
If you're a fintech-based company and are still unsure if tokenization is the right time, get in touch now! Talk to our blockchain app development experts about the possibilities and requirements and build a prosperous future.
