The fintech industry recognizes the transformative impact of blockchain technology to generate more revenue, improve end-user experience, delivery process and efficiency, and reduce risk in business operations.
FinTech, like any other technology-oriented industry, is in its evolutionary stage. Many new financial apps are emerging daily that offer new and better ways to process and manage payment.
Fintechs represent the majority of the blockchain market and for good reason. The blockchain financial technology market is expected to reach a value of $36.04 billion by the end of 2028. Decentralized finance (DeFi) will be an emerging blockchain-based financial technology that reduces the control of banks over financial services and money. As the decades pass, we will also see that digital ledgers will transform the way we receive, send, store, and manage our money.
What is Blockchain In FinTech?
You can say that 2022 is the period of financial technology. Many fintech companies have been thriving since the early 2000s, but in recent years, companies have seen tremendous success by applying modern technology and customer-focused ideas to solve problems in today’s financial systems.
DeFi or decentralized finance is the next step in this evolution that uses decentralized smart contracts. Many financial giants have also begun to invest in blockchain in the financial R&D of their businesses. This reinforces the fact that financial companies and blockchain companies are not necessarily at odds, but can greatly complement each other, thus promoting success.
DeFi is about integrating financial technology with blockchain. Although the two are not the same, there is a lot of crossover between use cases in the financial sector. Blockchain finance technology is known for its decentralized, distributed, immutable, and transparent digital ledger technology, providing a new kind of security and freedom. DeFi companies with blockchain elements create an open alternative to everyday financial elements. This has eliminated the need for an intermediary as people can now use stablecoins.
Read this blog to understand what blockchain technology is.
Improving financial technology using Blockchain Technology
The financial field, even after being the recipient of many integrations and technological advances, continues to operate as a centralized model, with financial institutions and governments at the center. Although it is an ancient tradition, financial services users are beginning to question its value.
This uncertainty has given rise to a more transparent solution: blockchain development services. Technology has added another dimension to the fintech scene, which has developed as a technological revolution in the financial sector. It has provided huge potential for the FinTech industry by bringing about significant changes in business models and operational processes.
This has led to startups and financial app development companies showing interest in exploring the need for blockchain in the fintech industry. Something we will talk about in this article.
But before we delve into the niche market and analyze how the adoption of blockchain technology in financial services changes the entire story, everyone needs to be on the same page regarding what blockchain is and how it works.
Challenges in the FinTech industry that Blockchain Technology Addresses
Challenges such as missing targets, long fundraising cycles, and mounting losses are common in the fintech industry and are often caused by poor management.
Here is a list of challenges that blockchain technology can address in the fintech industry:
1. Relying on a central system
Although fintech solutions provide a sense of convenience, the real power is still in the hands of third parties. Transactions are still only made with the approval of higher authorities, and users expect to receive confirmation in their favor.
2. There is no reliability
When users perform any action on fintech apps, they are not aware of what is happening on the other side. This creates a lot of confusion and increases the fear of identity theft; Which ultimately leads to less confidence in the process.
Blockchain application development services solve this fintech challenge with their features of transparency and immutability.
3. Slower operations
Another reason why fintech companies need blockchain technology is that the involvement of multiple third parties often delays operations. Ultimately, this leads to lower satisfaction rates and increased disruption to the business economy.
4. High operating cost
In the fintech market, time is money. Therefore, by reducing the dependence on multiple people, making the process common to everyone, and reducing the time taken, Blockchain technology has once again proven to be one of the fintech trends that can reduce cost by almost 50%.
While you may have gotten an idea of the role of blockchain in finance in the previous section, let’s cover the impact of blockchain-powered decentralized finance (Defi) in detail.
Blockchain ways to revamp the Fintech Industry
When talking about the impact of blockchain technology on fintech, the best way to analyze and understand the impact is to focus on the key areas of the economy. So, let’s move on to the subparts.
1. Banking and P2P payments
There is reckless bureaucracy and unchecked inefficiency in most banking structures, and these concerns are widespread in the clearing and settlement areas of banks.
These gaps, which arise from purely elementary forms of banking and involve hierarchy at multiple levels, can be avoided if there is a decentralized system that follows different consensus algorithms for faster transactions, thus introducing blockchain technology into financial services.
Accenture estimates that blockchain technology’s role in the banking clearing and settlement sectors could save the largest investment bank nearly $10 billion. In addition, the Australian Stock Exchange has already implemented a project to move post-trade clearing and settlement to a blockchain system.
Today, banks are fully aware of the real benefits of blockchain technology in finance (use of digital currencies) compared to traditional ones, such as lower transaction costs, faster transactions, etc. This convinces all financial bodies in the world to explore the possibility of switching to digital currencies and exploring blockchain solutions for fintech.
2. Trade and trade finance
Trade finance still relies on documents circulating around the world to verify information. Purchasing stocks and shares still have to go through a complex process of brokerage, exchanges, clearing, and settlement. Settlement usually takes 3 days but may extend over weekends as each trader must maintain their databases of all transaction-based documents and periodically check these databases against each other for accuracy.
The integration of blockchain technology into financial services can be used in this area to provide traders with an escape from cumbersome counterparty controls and improve the entire life cycle. This reduces the associated risks, speeds up the settlement process, and improves trading accuracy.
3. Crypto lending
Cryptocurrency lending introduces a new, efficient, and transparent lending process in the financial sector. Borrowers can hold their crypto assets as collateral for a cash or stablecoin-based loan, while lenders provide them with the assets needed for the loan at a pre-agreed interest rate. This also works in reverse. Borrowers sometimes use their stablecoins or fiat currencies as collateral to borrow crypto assets.
4. Regulatory compliance
This is again one of the main use cases for blockchain in the fintech sector.
With global demand for regulatory services expected to increase in the coming years, fintech companies are adopting blockchain technology to improve regulatory compliance. They rely on this technology to track every verified transaction and record all actions taken by individuals associated with it so that regulators are not required to confirm the authenticity of the record. Additionally, this technology allows regulators to review original documents instead of multiple copies.
Furthermore, blockchain’s immutability helps reduce the possibility of errors and ensure the integrity of records for financial reports and audits, as well as reducing the time and cost of audits and accounting.
Auditing
It is a process that verifies accounts and highlights any discrepancies. However, the process becomes easier with blockchain. Through technology, you can ask the partner company developing your blockchain applications to add the record directly to the ledger, allowing an efficient way to initiate and update data.
What are the Advantages of Blockchain in Finance?
Blockchain technology has enabled comprehensive, open, and secure business networks that allow digital security to be issued in a short period with lower unit costs and a higher level of customization. In recent years, blockchain technology has matured in finance, showing the following benefits:
Transparency
Blockchain technology uses protocols, exchange standards, and common processes, which serve as a unique source of growth for network participants. Improve data integrity and improve customer experience through faster processing.
Protection
Blockchain technology in finance has made it possible to implement secure application code that is specifically designed to be tamper-proof against third parties and malicious actors, making it nearly impossible to manipulate or hack.
Trust
An immutable and transparent ledger makes it easier for multiple parties in an enterprise network to manage data collaboration and reach agreements. Blockchain is a distributed ledger system for securely recording, managing, storing, and transmitting transactions across a large number of domains.
Privacy
Blockchain technology in finance provides market-leading tools for data privacy at different layers of software stacks, thus enabling selective data sharing across an enterprise network. This improves trust and transparency while maintaining confidentiality and privacy.
The Future of Blockchain in the Financial Industry
Talking about the future of blockchain in fintech, the technology adoption and use of blockchain in fintech is increasing significantly. The blockchain-based fintech market is expected to reach a value of $6,700.63 million by 2023, growing at a CAGR of 75.2% during the forecast period.
Blockchain fintech applications will take the industry by a devastating storm. Going forward, not only banking but non-banking financial services like asset and wealth management will soon reap the benefits of this very platform.
Financial institutions of all sizes should seek guidance to integrate and leverage this advanced technology into their business model to create their standards for increasing productivity, reducing costs, and customer satisfaction across the value chain.
How can API DOTS help?
Do you have an amazing idea in mind for a fintech app? Let API DOTS be your partner in developing and developing secure FinTech applications.
So, in case you are a fintech company and are still wondering if now is the right time to lay the foundation for tokenizing the financial industry, act now! Connect with financial technology experts to discuss opportunities, and requirements, and create a successful future.
Read More Fintech Software Development Related Posts:
- The Future of Banking: Unleashing the Power of Fintech Software Development
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