A complete transformation… that’s what has happened in the finance sector. Earlier, technology adoption was at a gradual pace, and the main aim was to substitute manual processes, such as book-keeping, recording customer information and transactional details to name a few. Enter FinTech, with the emphasis on replacing most tasks with latest technology applications and unimaginable solutions. And today, we cannot think about a future in FinTech without Blockchain. Who would have thought a process involving the formation of blocks and addition to a chain would derive such impressive results and cause such a revolution in FinTech? The never-ending chain on public, private and hybrid networks is picking up pace as we speak.
For Fintech, Blockchain Technology in 2020 is set to change the way data is stored, managed and recovered. With its multidimensional uses, even conservative companies are trying to incorporate Blockchain to ensure data integrity and engage enhanced security measures. Since there is no need for a centralized authority, there is adequate transparency and proper traceability. Data tampering, alteration and deletion – some of the major challenges of managing information on a day-to-day basis are avoidable due to this technology’s impenetrable nature.
According to a research study, FinTech Blockchain Market is estimated to reach USD 8,311 Million By 2024 globally…
A couple of words that come to mind which are directly related to Blockchain are Bitcoin and Cryptocurrency. Digital currency markets have seen new emerging digital assets and trading platforms since the introduction of Bitcoin almost a decade ago. A decentralized peer-to-peer network with virtual currency sounds very alluring, especially now when cryptocurrency is being increasingly recognized as a useful asset. Blockchain is an effective way to create a more secure and cost-effective method for trading in this relatively new division. There have been regulatory challenges and there are concerns since it is not considered a legal tender. Nonetheless, authorities are deliberating on its status, registration procedure and regulatory framework.
Let’s take a closer look at how Fintech is revolutionizing with Blockchain in 2020:
More Efficient Cross-Border Payments and Money Transfers
Intermediaries and diverse protocols increase the time taken for verification and transfer of payments and funds to various regions. The fees levied by banks for these transactions are also hefty, precisely creating opportunities for Blockchain. The cost and time for processing international payments will be reduced significantly with the use of Blockchain. B2B, B2C and personal transactions can happen within a matter of seconds going ahead.
A good instance of a success story is we.trade. Together with IBM, we.trade has developed a platform to streamline the payment process, making global trading less complicated and easier on the pockets. The revolutionary technology is expected to support global economic growth by accelerating the development potential for businesses. The risk attached to trading with unknown parties has been removed and payments are initiated through smart contacts, which will eventually lead to new business scope and expansion.
Simplification of the Know Your Customer (KYC) Processes
With Blockchain Technology in 2020, FinTech companies need not worry about storage and retrieval of customer information for verification, since the data will be available on a decentralized network. Data can be accessed by companies after permission has been granted by the client, which will merely involve a few seconds to complete the procedure. Account opening and new service requests will become effortless for clients and the use of Digital Signatures will ensure that client details are maintained in a secure format. It means effective control on granting access to prevent unauthorized persons from accessing information.
Processing costs are reduced by a good margin which is a definite win for FinTechs. Real-time screening across multiple networks offers-up the most updated, accurate and standardized information, along with ease of compliance with regulations. Chances of errors, loss of information, unethical use and data theft are reduced.
Further transformation across core banking systems
Start-ups replicating banking solutions, additionally clubbed with innovation and seamless service offerings have already proven to be disruptive for the banking sector. Complete digital transformation is being undertaken by banks to ensure improved client retention metrics. Blockchain is playing a significant role for many, because of its potential in maintaining permanent and unalterable records.
Traditional banking products are made available in a purely digital format by the onset of Digital-only Banks and related Apps. This has become extremely popular among the younger generation, given the ease of operations and verification process. With a single digital ID, banking and third-party services are accessible in no time. This means…no visits to the bank branch…no tedious form-filling… no long lines… smart solutions…chat-bots…The list goes on and on.
Another service being revolutionized with Blockchain Technology in 2020 is availing loans. It is viewed as somewhat of a hassle for borrowers and a risk for lenders. Blockchain simplifies this process to a certain extent for lenders by providing useful information, so that informed decision can be taken. The overall process of verification, assessing credibility and repayment potential becomes streamlined. As a result, borrowers can expect lower interest rates and better flexibility.
Positive Influence on Stock Markets
Major stock markets across the globe have started researching the potential of Blockchain technology and some of them have already started using this advanced tech for a few of their transaction segments. It has reduced transaction costs for users, bringing down impressive fees paid to mediators. Furthermore, operational trade clearance is faster, leading to an accelerated settlement process. Other important spectrums that are set to be transformed are margin financing and monitoring of systemic risks.
Nasdaq is one of the earliest among exchanges to explore the many opportunities offered by Blockchain. They have depicted a clear view of its importance and reality of the fact that the revolution is unavoidable. The applications of Blockchain will expand with time and the better option for businesses in the FinTech Industry is to start exploring and adapting sooner. Through the groundbreaking solutions, we can see the relevance to customer satisfaction, improved automation and handling data security challenges.
Additional Opportunities in P2P Lending
Exponential changes in the lending landscape have already been noticed with the onset of P2P lending sites. Working mechanisms are different from a traditional financial or banking unit, and Blockchain applications present further opportunities for these innovative lending models. Automation and smart contracts ensure protection of stakeholder interests.
Celsius Network provides users with a platform to earn, borrow and pay on the Blockchain. They promise lower interest rates as compared to traditional banks and also a range of additional services. Users can calculate the loan-to-collateral requirement instantly, determining ideal term for them and interest rates applicable.
Salt is another lending platform using Blockchain, providing individual and business loans in select countries across the globe. A combination of cryptocurrencies can be used to avail cash loans, with innovative features such as Loan Health reports and Portfolio Management tools engaging client attention.
Crucial Role in Crowdfunding
Bank funding, venture capital and other investment sources take time to process, during which aspiring companies may be unnecessarily redirected to suit generalized business objectives, rather than sticking to their unique logic for development. Often, vision, dreams and goals are lost to the traditional expectations of lenders. This is where crowdfunding provides a boost to innovative startups. But, there has been some inefficiency with the number of applications generated and the number of successful campaigns. Moreover investor complaints have been on the rise as well.
With the entry of Blockchain into crowdfunding platforms, there is better transparency and the rate of successful execution of projects listed is also improved. Smart contracts determine more specific funding terms to avoid cases of fraud and increase accountability. Initial Exchange Offerings (IEOs) and cryptoequity trading are being introduced, where investors can buy shares into a specific project.
Easier Regulatory Compliance and Audit
The important aspect here is the practical immutability of Blockchain. Regulators can check compliance by verifying the information and trail left during the recording process. With the help of traceable inputs, systematic monitoring will become a reality. KYC-related AML solutions are being automated using Blockchain for better risk assessment and compliance.
Earlier, for financial institutions, validation of potential clients would take up to days and there were no means to expedite the process. Hence, businesses had to wait out the various steps. Now, Blockchain has eliminated redundancy by providing previously-recorded information, which can be trusted. Companies can ensure that privacy and compliance standards are met, and prevent theft and misuse.
In a Nutshell…
Blockchain is encouraging financial services and accounting departments to look beyond the realm of usual possibilities. The advantages of using a distributed ledger over the traditional database system and having a growing network cannot be ignored. FinTech companies are essentially customer-oriented for the most part, and the fact that Blockchain comes with the capability to introduce safe and secure products and services, innovation does not stop. Teams are continually working on new features to upgrade, impressing clients in the process and improving their customer base.
From what we have seen, it is evident that Blockchain is here to stay and it will keep impacting the FinTech Industry at a rapid pace. It has created inroads towards flexibility and Cybersecurity which will reflect on major industry functions. In 2020, after the pandemic situation has put up roadblocks for many businesses, adopting Blockchain promises to transform their presence in markets, accelerating new market entry prospects and expansion strategy implementations. Blockchain is driving innovative practices, helping organizations recover and realize their full potential.