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Why you can’t get away from Blockchain if you are related to Fintech industry and how to implement it right away to extinguish competitors
Nowadays Blockchain technology is a topic everyone is talking about. Blockchain brought a true technological breakthrough which affected Healthcare, Shipping, Energy industries and of course primarily the technology significantly transformed the FinTech.
Gaining more and more popularity, FinTech and Blockchain technology interest not only individual enthusiasts or startuppers but even technically driven governments. Thus, UK, USA, China, Luxembourg, India, South Africa and Singapore support Fintech with companies receiving investments, tax incentives, subsidized loans, and other benefits to encourage their growth.
What is this if not evidence of Blockchain showing its potential to move the world of financial services and data sharing all over the globe. So what is the difference between Blockchain and Fintech? What makes Blockchain so powerful particularly in Fintech industry and what are ways of blockchain basics applications and limitations in fintech? Let’s have a closer look.
What is Blockchain, Fintech and how they are connected
FinTech is an industry of technologies and innovations which is used to conquer traditional financial organizations such as banks and third-parties on the financial services market. FinTech includes both numerous tech startups and big companies trying to upgrade and optimize provided financial services.
The main fields of Blockchain in FinTech application are:
Apparently, almost everyone has a common vision of Blockchain, if you would like to go a little deeper – here is a great article for you (https://www.computerworld.com/article/3191077/security/what-is-blockchain-the-most-disruptive-tech-in-decades.html).
Tip: There are over 4,000 Fintech companies and startups in 54 countries around the world with the USA, India, UK & Ireland, Israel, and Germany having largest number.
In few words, Blockchain is a database or a ledger that maintains a continuously growing list of data records or transactions. So what makes Blockchain so special? The main technology’s features are that it is trusted, decentralized, secure, shared publicity and automated.
The key advantage of blockchain is that data is completely reliable and can’t be faked or changed. That’s why Blockchain is an effective tool to build up trust between business and consumers. As they have the ability to access and provide reliable information, make faster and cheaper transactions around the world. This, in turn, can decrease marketing expenses and encourage using of financial services.
Blockchain has the capacity to widely transform the business transaction process across nearly every industry of the worldwide economy.
Tip: Forbes has published ‘First-Ever’ Richest People In Cryptocurrency List containing 19 people. In order to make the Forbes list, one must have accrued over $350 million.
The right applications of Blockchain in FinTech different fields such as asset creation and transfer or data validation can become a core indicator of system security and reliability, moreover a key value for success in FinTech industry.
Why modern financial systems need to be transformed
Currently, there was a great boom in financial technology – FinTech. Cash registers were replaced with smartphones and tablets, traditional loans gave way to crowdfunding and peer-to-peer lending. Meanwhile, cryptocurrencies continue to grow up in price.
Blockchain opportunities fit FinTech needs perfectly, becoming the most promising technology in this industry.
Why modern payment systems need to be upgraded with Blockchain
System can’t be trusted completely
Modern financial systems are fraught with various corruption and fraud cases. In centralized systems processes and data can be fabricated, changed or deleted. And vice versa decentralized Blockchain ledger provides all the authentic entries which copies are stored on numerous computers preventing data forgery and eliminating human error. Blockchain-based systems enable “trustless transactions”, which means that you don’t need to take the counterpart’s word, but you can be sure in systems’ mathematical reliability. With Blockchain technology transactions of any type and difficulty can be monitored in real time.
Blockchain also can provide the opportunity to reduce time for clearance and settlement processes as Blockchain records are seen in real-time.
According to Accenture’s (https://www.accenture.com) report Blockchain has a potential to reduce infrastructure costs for investment banks on average by 30%. When it comes to international payments, the process of payment and settlement can often be complex because of many payment participants engagement.
As every organization specialized in financial services stores its own data and share it with other companies through emails, the process of clearance and settlement is relatively inefficient taking two days or more. As a consequence, these delays lead to time and money wasting. The fact that Blockchain can deliver data among system participants immediately solves this issue automatically.
Payment processors and fees
Companies specialized in individuals payments authorization to companies are called payment processors. Such companies deal with credit and debit card transactions merchant acquiring banks. So as a result main parties of transaction process don’t have full control which can lead to risk of manipulation. Also, there are different kinds of fees for such service and transaction price grows up.
Tip: By 2020 more than 20% of financial services business would face the risk of bankruptcy because of FinTech.
Blockchain gives an opportunity of peer-to-peer transactions due to cryptocurrencies. As the technology is decentralized, the control over transactions belongs not to admin but to the system’s community and the decisions are reached by consensus. Well as being transparent and unchangeable, Blockchain-based transaction require highly minimized fees.
As we can see, Blockchain technology provides a universal solution and fits most FinTech objectives perfectly. No wonder a number of Blockchain-based startups in Fintech industry runs into the thousands and is constantly growing.
Blockchain Use Cases in FinTech
There are numerous Blockchain + Fintech Use Cases.
Banking and Cross-Border Micro-Payments Particularly
One of the most perspective field for Blockchain deployment is the remittance sector. Over 25% of the global remittance market is controlled by large companies such as Western Union, getting paid by fees which are not required with Blockchain technology.
Numerous Blockchain FinTech startups such as Sentbe plan to maintain peer-2-peer micro-payments. The company offers a 60% less expensive service and conditional payout locations.
Another app Abra also enables conducting free peer-to-peer money transferring and receiving by cash or to your bank account. Abra offers to store digital money on smartphones with no third-parties unlike popular payment apps such as PayPal. It also gets possible by using Blockchain.
The Blockchain technology can remove numerous controversies and stock manipulation as everything in the stock market will be built with smart contracts. First of all, it needs to get around exchanges, brokers and existing principles to decrease stock trading cost and time. As traditional trading process includes numerous parties getting their fees and may take several days. Not to mention Blockchain can eliminate trader’s grey tactics and bring transparency to the trading process.
A startup Funderbeam is set to launch the world’s first Blockchain-based investment trading platform. Every syndicate will be paired with a microfund that will own actual stakes in startups. So, when syndicate members want to trade all or parts of their holdings, they will trade digital stakes in that microfund. The company will be using the Blockchain to verify each transaction before enforcing it. The same will happen when investors sell their digital stakes/rights. In every investment, each ownership change will have a secure, distributed audit trail.
Tip: The top Fintech unicorns (startup companies valued at over $1 billion) with the highest evaluation are the Chinese startup Lufax and the US-based startups Stripe, Zenefits, Social Finance, and Credit Karma.
Cryptocurrencies is one of the first Blockchain Fintech use cases ever. Being based on and provided by Blockchain cryptocurrency is considered as a future of money. Nowadays it’s getting more and more casual to pay with cryptocurrencies in big international deals and even while shopping. Nowadays there are more than 2,000 cryptocurrency most of them having unique features and this number is rising.
Voting and Registers, including Governmental
This sectors highly requires data reliability and veracity, permanence and impossibility of forgery more than any and Blockchain gladly provides it.
Exonum has already implemented an e-voting platform which guarantees the integrity in the voting process to all participants. The application architecture allows easy integration of specific cryptography tools, providing the highest level of transparency.
Online Marketplaces and E-Commerce
A new startup called Openbazaar has started to develop an online marketplace without any fees like eBay, powered by Blockchain.
Company would provide a platform for active goods and services exchange without risky centralized systems allowing more people to establish their e-commerce business with no paying for any special e-trading tools.
Openbazaar plans to diversify services and add the smart contract and peer-to-peer lending in the long run.
Tip: 11 Blockchain & Crypto Companies were included in Forbes’ ‘Fintech 50 For 2018’ List. According to Forbes these companies are “building infrastructure—to support both public cryptocurrency markets and initiatives that could transform how current financial transactions are executed and recorded.”
Eventually, the trend continues, and the opportunities which Blockchain technology brings to Fintech industry are hard to overestimate. Thus, forecasting a shift in paradigm and complying appropriately with course of events will truly be a smart move for organizations and individuals as well.
No wonder currently there is a great number of organizations integrating Blockchain into their payment processing. It is expected Blockchain technology pushing the envelope in fintech the effect of the technology will be increasing more and more.
Don’t hesitate to start your business transformation while competitors are still doubting. Whether you consider the opportunities of Blockchain for establishing a new breakthrough business or level-upping an existing one it’s a great tool to create an amazing project! You may find out about your idea realization feasibility by asking us.