7 Ways Blockchain is Revolutionizing in Fintech [2021]

Ever since its initial release, blockchain has proven to be worth adopting across many industries. It is a decentralized ledger technology that is not handled by a single person or community. Blockchain technology works by storing data records in the form of a chain of blocks without any middleman’s need. Since the records stored in blockchain are immutable, it becomes one of the most secure technologies the world has ever seen.

This security is what the fintech sector has always been longing for. The fintech sector has been pioneering to reduce transaction costs. Blockchain is the perfect recipe for eliminating middleman transaction costs. That’s not just the only blockchain application in fintech; there are many more.

We will be going through some primary blockchain applications in fintech. But before diving into the applications, let’s look at why the fintech industry needs blockchain. Is it just because of the security, or there’s something more to it?

Blockchain and Fintech: The Marriage Made in Heaven

Security is the biggest but not the only reason why the fintech sector needs blockchain. Usually, fintech companies face trust issues. To build trust, they invest a considerable sum of money to build a secure network for financial transactions. It indirectly increases the middleman transaction charges. A McKinsey study states that remittance companies make $40 billion a year from the transaction charges.

That’s where blockchain comes into the picture. Firstly, it is affordable and secure. Besides, it also eliminates intermediaries, allowing savings on transaction fees. This is why back in 2017, around 77% of the finance industry planned to adopt blockchain by 2020, making it the technology of the future.

What are the Different Blockchain Applications in Fintech?

With such trust and security, the blockchain applications in fintech are capable of completely revolutionizing the industry. Here are some of the primary use cases that can be easily incorporated into the fintech sector.

1. Transfers Without Middlemen

Financial regulators take transaction fees for using our own money. Despite the money being ours, most of the terms and regulations are implemented by the central authorities. Blockchain applications provide a way to transfer money anywhere across the world at significantly reduced transaction fees. With peer-to-peer transactions, blockchain eliminates all intermediaries taking out all the additional costs. On top of that, its decentralized structure also allows us to take complete control of our money.

2. Digital Identity Verification

Blockchain allows end-users to manage their digital identity. Once the registration process has finished, users can quickly transfer funds or data securely using their private keys. This eliminates all the risks of sending money to the wrong person. The end-users will never have to worry about who the other person on the receiving end is.

3. Smart Contracts

Smart contracts are one of the best applications of blockchain technology. They are simply a piece of code that executes automatically after meeting the agreed-upon conditions. With the auto-implementation feature, it introduces integrity within the network chain. An easy-to-understand use case of the smart contracts will be in the loans department.

Suppose a customer takes a loan from a finance company. The company can develop a smart contract with agreed-upon interest, terms, and conditions. If the customer does not repay the loan on the agreed terms, the smart contract will be triggered automatically to increase the amount along with interest.

4. Trade Finance

Trading has long been a source of additional income for many people. But it requires many middlemen such as brokers, Demat agents, and the stock exchange. It is also associated with many risks and shady tactics. Blockchain can play various roles in this stock lifecycle:

  • It can eliminate several middlemen to make the process hassle-free.
  • It can reduce the stock cycle loopholes by making it completely transparent.
  • It can also secure the stock exchange network through immutable data records.

5. Faster Cross-Border Payments

Even if you use another bank’s ATM for withdrawing cash, both the banks have to communicate to check and verify the account status and details, such as the amount available for processing cash withdrawal. This, of course, does not take much time. But imagine the same with cross-border payments.

The crux of the story is that cross-border payments take a lot of processing time, and blockchain can reduce it. If banks and other finance companies connect to a single blockchain network, they can easily upload and access any data required for transactions. This would make the cross-border payments a lot simpler and swift.

6. Limit Cyber Fraud

Fintech companies handle critical financial data. Hence, even a single breach can cost them a fortune. Blockchain technology’s architecture makes it one of the most, if not the most, secure technologies out there. It stores and transfers data using cryptographic hash functions.

Also, the blockchain is a decentralized ledger network that holds data in the form of a chain. Hence, altering data in this ledger becomes challenging for anyone trying to penetrate the network and steal data. The fintech sector can use this blockchain architecture to limit cyber fraud.

7. Secure Data Storage for Auditing

Review and auditing are an integral part of the fintech sector. Currently, the audit process and paperwork consume a lot of time. Blockchain technology only allows the addition of new blocks without hampering old ones. This means that anyone from the finance sector can upload and access previous data for quick and seamless auditing.

Conclusion

Blockchain applications in fintech are undoubtedly capable of taking the industry by storm, and not just that, blockchain is a revolutionary technology regardless of the industry. Hence, it does not come as a surprise that the demand for blockchain developers is increasing worldwide.

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