There was a time when terms like blockchain, cryptocurrencies, FinTech were only used by experts. Now, everyone is familiar with these technologies and using these to impact our world in a positive way.
With this revolutionizing technology, nothing seems like a long shot anymore. All the loopholes that the internet left have been filled by blockchain technology; the main idea is making the industries limitless and lawful at the same time. With the advancement of technology in almost every sphere of global business, the financial market is also not far behind.
Along with blockchain and cryptocurrencies like Bitcoin, Altcoin etc, FinTech is also attracting a lot of attention of people nowadays. Being a much-hyped buzzword in the financial market, FinTech is gaining popularity for all the right reasons. But we also keep hearing how blockchain can topple the FinTech market.
So, in this article, we will cover why FinTech needs blockchain and how blockchain is impacting the FinTech market.
Why FinTech needs Blockchain
Trust is certainly the biggest challenge faced by a FinTech company. How to make a secure financial product and how to make people trust them? FinTech companies don’t have enough funds that confine them from developing a high-security system.
However, the majority of people now engages in day-to-day banking activities, crypto trading, investment in the stock market, make online payments and exchange currency online, which needs the utmost security.
This is where blockchain comes into play. It is affordable to develop and offers high security. Since blockchain is a series of immutable blocks, companies can track the complete lifecycle of a financial transaction efficiently. It even lets the companies to create a safe and secure financial products, bringing innovation to the financial sector.
Blockchain is even capable of truly disrupting various industries making the process more secure, democratic, transparent, and efficient.
Now, you must be wondering how blockchain technology can topple the FinTech market. Well, read on to find out.
1. Faster, Secure payment processing
Blockchain has the capability of completely revolutionizing the current system of payments. The technology can make the payments processing more secure and also lowers down its cost.
The finance industry has perhaps the most number of intermediaries. It makes money transfer within a country inefficient and the problem with international money transfer more severe.
International transactions may take days to complete because of the number of intermediaries involved. The main problems that contribute to these inefficiencies are the time spent transferring money and the security in which it was transferred.
But cross-border payments platforms powered by blockchain makes the payment network less time consuming and more efficient. With blockchain, you can transfer the money globally in just a few clicks. If you use smaller blockchains, the transfer time is more instant.
Further, there are no intermediaries involved, and the fees are minimal. In fact, it is less than any other money transfer alternatives. Money remittances are the most disruptive sector within Finance. These companies surely make a dent in people’s pocket for transferring funds to other countries. If they do not fundamentally change their fee structure, they will soon become obsolete for blockchain-powered alternatives.
2. Limiting the effects of cyber fraud
Artificial Intelligence has also added to cybersecurity threats. And, once there is any access to a system, hackers can further get a key to yet another security breach, which leads to more security failure and loss.such as stock exchanges, banks, and money transfer services are most vulnerable to fraudulent cases. The reason behind this is the use of a centralized database, which can be exploited to manipulate the whole database and steal important user’s data. Nowadays,
Once again, blockchain comes as a solution to this problem. Blockchain is a distributed ledger that is difficult to penetrate. The decentralized data is stored in blocks, which further contains a cryptographic hash function. Each block holds a link to the previous block’s hash, thus creating a chain of records that is difficult to falsify.
3. Simplified customer identification
Financial institutions spend around $500 million on Know Your Customer (KYC) process. Currently, the customer identification process involves various steps that impact financial institutions’ business.
Blockchain can reduce the cost and effort required in KYC verification through cross-institution client verification.
It enables the user to verify their identity and KYC themselves through one platform. There are many projects in the market that strive to be permanent digital records of identity. Once a market leader has set itself, there may be an immutable ledger of pre-KYC people that financial institutions can securely obtain data from.
Blockchain technology also supports independent verification. It means an individual/ client verified by one organization can be accessed by other organizations, ensuring that KYC doesn’t need to start over again.
With FinTech developing, it can easily be predicted that the financial services of the world will surely evolve over the next few years. There are many areas for applying the blockchain technology, but the major ones include smart contracts, digital payments, digital identity, and share trading. Also, now we know how blockchain is driving disruption in the FinTech industry. But disruption cannot happen overnight.
Nevertheless, blockchain is in its infancy stage and exploring new possibilities. A lot in this actual technology has yet to be perfected. Many financial groups believe that blockchain can spin new changes in the financial services industry. Despite the risks associated with this technology, it will certainly reshape the whole way that FinTech market functions in the global economy.
Although the FinTech market is excited about blockchain, this technology will still take some time to become a mainstream model. As the blockchain technology is still growing, it is critical you research and keep-up with the latest developments to exploit this technology to transform our financial processes entirely. No matter the case, one thing is for sure; blockchain will indeed revolutionize the FinTech market.