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?
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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.
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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.
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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.
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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.
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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.
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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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Can Blockchain bloom in non-financial sectors?
In non-financial areas, blockchain technology has a variety of possible uses. By allowing for the safe tracking of items and assets across the supply chain, blockchain technology can increase supply chain transparency and efficiency. It allows for the secure sharing of medical data between patients, doctors, and insurers, improving the security and accuracy of patient data. It can also enhance the security and accuracy of voting records by enabling secure and transparent voting record recording. It can also improve the security and accuracy of real estate transactions by allowing for faster and more transparent property transaction recording.
Do I need to know about blockchain if I am a part of the marketing team?
From the supplier to the retailer, blockchain may be used to track the movement of items along the supply chain. This can ensure that the correct goods are delivered to the right destination and that counterfeit goods do not enter the supply chain. It can track where advertisements are placed and how well they perform. This can assist in guaranteeing that ads are put in the right places and that the right people see them. It can also keep track of points and incentives in customer loyalty programs. This can help guarantee that customers are rewarded appropriately for their loyalty. It can also be used to prevent fraudulent actions like credit card fraud. Customers and businesses can be protected from losing money due to fraudulent activity. It can also securely handle and save data.
How can a finance officer further his career using blockchain?
There are a few ways that blockchain technology could help finance officers advance their career. Learning how to create and use blockchain applications is one option. Another option is to learn how to better analyze and evaluate blockchain data to better comprehend this technology's financial ramifications. A finance officer could also learn about blockchain for financial auditing and governance. Finally, to keep ahead of the curve and be prepared for any changes, it is critical to research the potential consequences of blockchain technology on the financial industry.