Blockchain technology has unquestionably transformed the financial services industry.
Over the past several years, Blockchain has risen to prominence in the wings of cryptocurrency. Cryptocurrency has seen better days, so it’s a great time to revisit the myriad of other applications for blockchain. Fintech is a great place to start. The applications and implications of blockchain, when applied across the vast and diverse fintech industry, are numerous and powerful. In this article, we will explain how blockchain is transforming fintech.
So how exactly are fintech companies utilizing blockchain technology? For starters, the digital ledger helps fintech businesses through its distributed and decentralized structure by successfully enabling massive levels of security, efficiency, and equality among financial companies and organizations around the world.
In other words, this modern technology makes a lot of everyday business tasks easier and safer in the fintech industry. Financial organizations can rely on fewer errors and fraud taking place. Instant, secure financial transactions, settlements, and payments are ensured. Blockchain is even simplifying major accounting processes such as auditing procedures, bank reconciliations, and general bookkeeping methods.
Essentially, the distributed online ledger greatly reduces the chances for setbacks while resolving major financial issues such as identity theft and other operational inefficiencies at the same time.
Now let’s get more specific. Here are some ways blockchain technology is used for specific categories within the fintech industry.
Let’s start with the most well-known application - crypto. At its core, cryptocurrency is a powerful innovation that is transforming international currencies and payments. All cryptocurrencies are powered by blockchain, and we have this blockchain infrastructure to thank for the immutability and decentralization of modern currency. While controversial, blockchain is helping to modernize the way we think about open, accessible payments and digital currency.
In the insurance industry, blockchain-powered smart contracts ensure tamper-proof audit trails and reduce data silos, helping to prevent fraud. Data can be shared more securely in real-time, speeding up execution and reducing costs. Claims, ownership, and provenance can be tracked quickly and more efficiently internationally. The cost savings across all of these areas of impact will inevitably result in increased competition, and therefore increased access to underinsured markets.
The real estate industry has seen, arguably, the widest array of applications for Blockchain. Real estate assets have begun to be “tokenized” as a result of Blockchain, enabling fractionalization of ownership and increasing access to the largest asset class in the world. The digitization of these assets also results in transparency around issuance and trading. Blockchain has started to make a massive impact on the archaic, paper-based loan origination and underwriting process. Property managers are reaping the benefits of streamlined rental payments and superior due diligence. Land titles, another paper-based aspect of the real estate industry, have transformed into digital assets thanks to Blockchain. In the real estate category, the impact is being seen across leasing, construction, and urban planning - almost too many categories to count.
Although it has been a rough year for crypto exchanges, this is one area that has seen major success as a result of Blockchain technology. Traditional securities exchanges (like Nasdaq, Nyse, and CBOE) have recently begun to feel the threat of newcomer exchanges that have the luxury of starting from scratch in a post-Blockchain world. While traditional exchanges are facing the innovator’s dilemma, new exchanges are capitalizing on the fact that Blockchain can completely replace exchange, brokerage, custody, and clearing. Even market data companies are at risk since blockchain could eventually become the new source of trading volume and data. While most blockchain-based exchanges have remained solely focused on the trading of cryptocurrencies, the potential to branch into traditional asset classes looms.
Since Blockchain is based on the premise of immutability, transparency, and record keeping, there are obvious applications in the areas of Regulation and Compliance. Complex and tedious regulations can be tracked in a blockchain-based system, increasing compliance and streamlining processes. This real-time access to information helps regulators speed up processes and increase quality.
Anti-Money-Laundering (AML) and Know-Your-Customer (KYC) are critical aspects of banking, payments, and other fintech services. Keeping customer and personal information in a blockchain-based system increases transparency and helps banks keep a handle on money flows and customers. Blockchain technology is a game changer for reducing money laundering and fraud, helping banks drastically streamline these traditionally critical processes.
Companies in the fintech industry are benefiting from blockchain technology in numerous ways. Not only does the advanced digital ledger add value, save huge costs, and eliminate third parties for businesses, but it has created a new sense of financial freedom in the world of finance. Here are the top 10 benefits of blockchain technology on fintech businesses:
Blockchain technology has become quite famous since its debut in 2008. There are now over 18,000 different types of cryptocurrencies available today.
Here are the 20 most popular cryptocurrencies that are currently available:
This game-changing technology is only going to expand and integrate deeper into the financial world. And with blockchain technology becoming an essential resource, fintech companies are going to have to readjust their business models and incorporate the blockchain infrastructure to keep up with competitors.
Blockchain is going to revolutionize the future of fintech businesses by eliminating the need for excessive paperwork, security vulnerabilities, costly and timely transactions, and possible corruption. All fintech platforms and businesses will be able to automate complex workflows without a problem, meaning financial procedures that would normally take days or weeks to perform will be completed within hours due to this dynamic technology.
Blockchain technology has already had a huge impact on well-known financial institutions, such as Bank of America, JP Morgan, Swedish Central Bank, State Bank of India, and Standard Chartered. And according to Statista, “the global blockchain market revenue was heavily distributed towards the banking industry, which has a market share of almost 30 percent.”
This technology is also positively impacting the global digital payments sector. After the Coronavirus pandemic disrupted the world in 2020, the volume and value of digital transactions skyrocketed, and “the global digital payments industry grew by 16% year-over-year and reached $5.4 trillion in value”, simply because of blockchain technology.
Conclusively, with the demand for “fast and transparent financial services,” the fintech industry has no choice but to accept blockchain technology. Adopting the technology is the only way fintech businesses and platforms are going to be successful for years to come.
Exchanges, brokers, custodians, clearinghouses, market data providers, traditional currencies, traditional lenders, title companies, real estate agents, and insurance agents are all at risk. The future of blockchain and fintech will depend on how traditional institutions respond to this increased risk: they can build, buy, partner, or die. Many traditional institutions have started to collaborate with newer, innovative blockchain companies, investing, and in some cases acquiring them. Others have started to attempt to outwit the innovator’s dilemma by building their own blockchain systems to stay relevant.
Those that don’t build, buy, partner, or at least collaborate may face extinction. This is no trivial transformation - there are hundreds of multi-billion-dollar companies facing impact. Only time will tell!
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