Over the past decades, technology and finance have converged to deliver a better experience and streamline financial operations. The fusion of the two has given rise to countless disruptive innovations such as financial technology (Fintech) and blockchain technology. Like other technology-centric sectors, the Fintech sector is continuously evolving. As a result, many innovations are born every year. These innovations have played an important role in restructuring and improving various aspects of the traditional financial system.
These technologies work like magic, and it’s no exaggeration to say that millions of people are looking to blockchain technology to transform the financial world of the future. We expect blockchain to play a key role in driving the future growth of fintech. This means that the adoption of blockchain technology in the fintech sector will steadily increase over the next few years.
Today we will discuss the role of blockchain in the fintech space today and what the next few years have in store for us.
But before we get there, let’s familiarize ourselves with the terms fintech and blockchain.
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What is Fintech?
Fintech, short for Financial Technology, is a field that involves the use of technology to improve, automate, or disrupt financial services and processes. Fintech companies often develop and offer digital or online financial products and services aimed at improving the efficiency, convenience and accessibility of the financial industry.
Fintech examples include mobile banking apps, peer-to-peer payment platforms, and online investment platforms. Fintech has the potential to revolutionize the traditional financial system 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 over a network without the need for a central authority. Each transaction is recorded in a block linked to the previous block, forming a chain of blocks. This structure makes the transaction difficult to modify or tamper with, as it requires the change to be made on every subsequent block 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. Although most commonly associated with cryptocurrencies, it has many other potential uses.
Blockchain technology in fintech
We say goodbye to 2022 and enter 2023 with a lot of excitement as far as Fintech is concerned. Over the past decade, a number of fintech companies have entered the mainstream financial sector with great success. Their success can be attributed to the judicious use of modern technology with a 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 evolutionary path of the financial sector. Many prominent financial companies have started investing heavily in blockchain and financial research and development. The trend shows that blockchain and technology companies are likely to work together to create a secure, user-centric and seamless financial sector soon. It is worth noting the confluence of blockchain and fintech Harmful to Defi’s success. Blockchain and fintech are not the same, but there are many overlapping applications in the current financial sector.
Are blockchain and fintech the same?
Many people, especially those who do not work in the financial industry, do not know that Fintech and Blockchain are not synonymous. Fintech and blockchain are not the same.
Fintech primarily refers to the use of technology to enhance, disrupt or automate existing financial processes and services. Blockchain, on the other hand, is a kind of technology that paves the way for more secure and transparent record keeping and transfer of value.
Blockchain is basically one of many technologies under the Fintech umbrella. Additionally, while companies may use blockchain technology as part of their fintech products, not all fintech companies are able to use blockchain.
How is blockchain technology in fintech a potential game changer?
There is no doubt that blockchain has gained tremendous popularity in recent years. That said, the technology is still in its infancy compared to other technologies currently in use in the financial sector. With great potential, blockchain technology has emerged as a harbinger of a revolution in today’s financial world.
Here are some of the ways fintech blockchain could be a potential game changer.
Transparent financial transactions
Financial transactions on the block can create peer-to-peer networks, lightning-fast transactions, and complete transparency without the need for intermediaries. The use of blockchain in finance goes beyond transparency. Users will have full control over their assets, opening the door to a fully democratic financial system using blockchain technology.
bankless financial management
Will banks soon become obsolete? Are we moving toward a bankless financial management ecosystem? Read along to find out the answers to these questions. Blockchain has now enabled thousands of individuals around the world to manage their finances without a bank. How?
Individuals who have invested in cryptocurrencies such as Ethereum and Bitcoin are doing so through blockchain digital wallets without involving banks in the process. In this scenario, the private key protects the wallet owner’s security. Additionally, every user also has a unique public address that allows them to send and receive payments.
Unlike traditional currencies, in this case every wallet owner with a unique private key is the sole owner of the asset. This is only possible thanks to blockchain technology. Here the bank is not responsible for protecting your assets. There are already several projects working towards building a bankless financial system using blockchain technology. Blockchain-based financial systems are still in their early stages and it is difficult to predict exactly how they will evolve.
Blockchain in Fintech paves the way for the KYC revolution
Today, identity and trust verification is largely done by inexperienced incumbent intermediaries. Blockchain solves this problem. Fintech blockchain technology has the potential to change the way users put their trust in the financial system.
The entire Know Your Customer or KYC process will be significantly transformed by blockchain. Customer information is encrypted and stored with a single digital entry, eliminating the need for multiple confirmations and entries. These groundbreaking innovations are yet to be seen in wholesale banking, traditional payment networks, lending markets, equity he crowdfunding and more. However, this could change soon as blockchain adoption in fintech continues to grow.
A transparent funding model
Do you know how crowdfunding works? Let’s review the basics. It typically revolves around amassing large sums of money by asking multiple people for small sums of money. Most often this is done online.
Blockchain, along with IEOs and ICROs, could play a key role in accelerating this process and increasing transparency. Today, ICOs have surpassed interest in venture capital funding models around the world. A closer analysis of this trend suggests that crowdfunding is heading towards a more transparent future.
Streamlined and transparent borderless payment using blockchain technology
Blockchain technology has the potential to make cross-border payments easier. As mentioned earlier, one of the main advantages of using blockchain for payments is that it enables 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 currency used.
Additionally, many blockchain-based payment systems use cryptocurrencies, which are digital assets that are not tied to any particular country or currency. This makes it easier to send and receive cross-border payments, as funds can be converted into local cash when needed. Several blockchain-based payment systems are already in use today and are growing in popularity.
For example, Bitcoin, the first and most famous cryptocurrency, has been used for millions of cross-border payments. Other cryptocurrencies such as Ethereum and Litecoin are also used for international payments. In a nutshell, the use of blockchain-based payment systems will continue to grow, making it easier for people to make cross-border payments.
It is now very clear that blockchain will play an important role in shaping the financial sector of the future. It is only a matter of time before we see blockchain making a strong impression in both the banking and non-banking financial services sector.
Financial institutions of all sizes should seek help on how to incorporate and use this cutting-edge technology into their business models to define efficiency, cost savings and customer satisfaction goals across their value chains.
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Feature image source: photo courtesy Shubham Dirge upon unsplash
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Image 2 Source: Photo by Jonathan Cooper on Unsplash