How Blockchain Technology is Transforming FinTech?

Blockchain technology has been in discussions recently, however, it is important to understand that blockchain in Fintech has been for over a decade offering advantages like easy accessibility, security, transparency, and more. It facilitates Peer-to-Peer (P2P) trading of assets without any middlemen. According to the prediction made by Market in 2022, the utilization of blockchain in the Fintech market all over the world is expected to grow at a compound rate of 87.7% up to 2030 with an esteemed value of $ 10.02 billion. At the same time, the DeFi market which was worth $13.61 billion in 2022 is expected to grow at a 46% CAGR by the same year.

In addition, the venture investors’ investment in the Fintech companies increased to nearly three times its 2020 level to more than $133 billion in 2021. Consequently, one can state that distributed ledger technology is preferred by financial institutions. In this blog, let us consider how it can come in and fill the gaps in corporate financial services.

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Where does Blockchain fit into Fintech?

The application of blockchain in Fintech has brought with it a plethora of opportunities. Some of the biggest advantages are low cost, a functional system, enhanced transparency, and expanded operations. This blog aims to discuss three major ways that Fintech and blockchain have impacted the financial market for companies as well as clients. We will also present you how technologies based on Blockchain can address problems that are particular to a sector and optimize procedures. We will also provide information on the technology and whether the market is prepared to utilize it. 

DeFi is a simple uncomplex technology that aids in facilitating decentralized transactions on blockchain. The application of blockchain for Fintech has developed several models like decentralized finance (DeFi)  DeFi introduces financial technologies and blockchain to create better, easier, and safer financial services. With the use of this technology, individuals can transfer their assets without having to involve the other party. In the coming years, the Fintech market is expected to experience a staggering growth of $10.02 billion in 2022 and a compound annual growth rate of 87.7% up to 2030.

 At the same time, DeFi’s market reached $13.61 billion in 2022 and is projected to grow with a CAGR of 46% till the same year. In addition, a survey revealed that takeovers rounded $133 billion raised by venture capitalists for financing Fintech start-ups in 2021 – a sharp increase from the year before.

Factors Contributing To the Growth of the Industry

The blockchain in the Fintech industry is rising at a very rapid rate. Some of the prime reasons for this growth include:

• Rising need for distributed ledger solutions.
• The increasing market capitalization of cryptocurrencies and ICOs.
• Adoption of innovative and effective blockchain technology applications and integration of efficient blockchain solutions into financial institutions.

In addition, the modern active digitalization of the financial sector is suitable for the development of Fintech and blockchain platforms. Every day more and more banks, credit organizations, and financial companies of various sizes are seeking possibilities to use automated systems and make financial deals as fast and secure as possible.

Moreover, professionals predict that accepting cryptocurrencies and digital tokens for payment purposes will also play an active role in the further evolution of the market. It is also important to note that many Fintech organizations have also started applying blockchain technology for business processes and procedures that facilitate the effective prevention of fraud and enhancement of services delivered to customers.

Stablecoins are another relatively new technology that seems to be on its way up. As you are going to learn DeFi protocols, they enhance liquidity and improve cost savings and stability as the future model will show. Within the next two years, DeFi and blockchain technology will be applied in several fields besides the financial technology sector.

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Blockchain’s Capability to Address the Fintech Industry Challenges

Mismanagement has been identified to be at the root of challenges such as delayed deliveries, lengthy funding rounds, and increasing losses in the FinTech sector. The financial sector faces the following list of issues that blockchain technology can help with:

High Operational Expenses

Blockchain is believed to reduce the cost of doing transactions in the financial industry. Even a simple credit card transaction includes many partners in a typical system: the retailer, the bank, and the credit card network. In its capacity, each of these organizations levies a fee. Several peer-to-peer transactions and decentralized procedures in the function of clearing financial activities eliminate middlemen through blockchain technology hence a fast rate of processing from Fintech firms’ end and fewer charges on the customer side.

Lack of Access to Different Services

There are some situations in which information on Fintech services may be limited or banned. If an individual is using an application while on the move, there are times that he or she will not be able to fully utilize it because of technological barriers or perhaps due to restrictions put in place by the firm. Besides, a business may not have branches, or telecommute employees which can be a result of various reasons. Blockchain in Fintech technology makes it possible for businesses to be run without necessarily relying on the main financial institutions. Through decentralized apps, cryptocurrencies as well as smart contracts clients can perform activities from any location. Thus the idea is that via financial services, a facility becomes accessible internationally at any time.

Lack of Traceability

Companies within the Fintech blockchain face traceability issues in conventional financial systems. Basic procedures usually require many links before, during, and after completing the processes, making tracing and authenticating very difficult. This in return offers great traceability from a distributed, decentralized log that is public through the use of blockchain technology. Sophisticated processing algorithms and consensus keep details of all the financial transactions in the public domain. As a result, the auditors can quickly check the Fintech activities and the consumers can look through every record on the given network.

Slow Operations

In traditional open-book systems, retail Fintech might take a few hours to several days at most. This is so because, apart from several middlemen and clearing houses, activities such as human processing are required. Blockchain, as for its design, has a quick design. As an example, it reduces the time that different businesses take to authorize and verify their customers’ transactions, thus enhancing the rate of settlement. It also reduces the time taken to complete a transaction as well as to verify payments.

Applications of Blockchain in the Fintech Industry

The best method for observing and analyzing the effects of the Fintech blockchain is to focus on the economy. So let’s focus on insights into blockchain in Fintech field. 

Banking and Peer-to-Peer Payments: Conventional payment networks have shortcomings and are expensive, especially concerning clearing and settlement. Blockchain technology presents a distributed structure that minimizes the cost and time involved in a transaction by using an agreed algorithm. Blockchain in removing intermediaries and bureaucracy brings effectiveness to the payments between the peers. Further, blockchain addresses issues of security and prevalence of fraud within the payment systems and thus increases the credibility of payment systems.

Trading and Trade Finance: Due to trade finance, most of the traditional banking procedures were mainly done on paper and traded with long settlement periods that would give rise to increased risk and time. Blockchain disrupts the Trade Finance process by removing the reliance on paper-based documentation and simplifying and accelerating processes of trade settling. Decentralized ledgers and smart contracts in trade finance provide improvements in trading systems therefore reducing risk and increasing system efficiency where available

Crypto Lending: Based on the value possessed by the cryptocurrency, a new concept of borrowing and lending is introduced where people can receive loans easily. Employers request fiat or stablecoin funded with crypto assets, and employees provide the necessary amount at the agreed interest rate. This structure brings efficiency and possible market for debtors and creditors and opens new prospects for financing and utilization of funds in the sphere of finance.

Compliance: Compliance is an important aspect of the financial services industry and highly demanding in strict adherence to legal and regulatory requirements. Blockchain technology facilitates and ensures compliance through the provision of a consistent and transparent record of transactions, thus eliminating or significantly reducing the need for elaborate monitoring systems to ensure the integrity of financial records and modification of Blockchain to facilitate regulatory confrontations and accounting, all the more enhancing efficiency and reliability in the financial system.

Digital Identity: Identity theft and fraudulently opened accounts represent some of the most pertinent challenges facing the digital economy, with the need being greater than ever for solid identity verification measures. Blockchain provides a decentralized digital identity and verification mechanism that allows a person to control and share their identity data securely. Blockchain allows secure authentication and identity verification through cryptographic protocols and distributed consent, mitigating fraudsters and increasing trust in digital transactions.

Auditing: For traditional budgets, auditing is thorough, slow, and often demands an over-exhaustive amount of time spent performing verifications manually. Blockchain simplifies bookkeeping through a transparent and immutable ledger of transactions that ease the task of inspecting and corroborating financial details. Blockchain thus introduces accountability through recording and updating records in such a way as to render the system easier to operate, reduce costs in the process, and improve accuracy.

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Blockchain in the Fintech Industry Advantages

Blockchain enables corporate serving networks open, secure, and inclusive. This can provide fast, customized, and inexpensive digital security. The use of blockchain technology in finance has gained momentum over the last few years, exhibiting the following advantages.

Transparency of actions

Blockchain technology uses mutual, shared processes and protocols to provide a single source of growth for all network members. Agile processes enhance customer experience while preserving data integrity. 

Security

The use of blockchain in finance has made it possible to create secure application code that is designed to be impervious to malicious and third parties, making it generally difficult to modify or crack.

Trust

It is easier for various stakeholders in interagency transactions to manage data operations, and contracts, and maintain an immutable and transparent ledger Blockchain is used to record, process, store, and transmit transactions across different industries in the field of security.

Privacy

In finance, blockchain enables business networks to choose data sharing by providing industry-leading technologies for data privacy at software stack levels. This protects privacy and confidentiality while increasing openness and trust.

The Ability to Plan

It facilitates the development and implementation of smart contracts, which are tamper-proof, deterministic software that automate corporate processes for improved programmability, efficiency, and reliability.

High Performance and Flexibility

In finance, blockchain consists of individual and hybrid transactions designed to process hundreds of transactions per second. Blockchain in Fintech makes it possible to provide such services quickly

Why Blockchain is the Future of Fintech Market

Blockchain in Fintech is evolving constantly. The growth in this industry is expected to grow at a rate of 75.2% per annum to reach a value of US$ 6700.63 million by 2024. New Financial Technology industry blockchain applications are going to change the face of the sector as has never occurred before. In the future, this specific platform may not only handle all functions of banks but also the NBFCs where asset and wealth management are involved.

Banks of all scales especially new and growing ones should seek guidance on how to adopt and apply this innovative technology to their strategies so they can determine best practices for the enhancement of customer experiences, reduction of costs, and optimization of growth along the value chain.

Conclusion

Blockchain technology has become unarguably influential within the Fintech sector as it offers solutions to traditional problems like security, transparency, and operation processes. The decentralized structure cuts the middleman, making the transaction more efficient, secure, and cheap. Its distributed ledger also keeps records permanently unchangeable, further adding to the overall transparency, whereby users should be able to track and verify every transaction in real time hence enhancing accountability.

In addition, the advancement of smart contracts and decentralized finance (DeFi) platforms has duly enabled new possibilities for enhancing the service delivery of financial services. As the Fintech industry grows further, the technology relied on, blockchain, will be relied on more to improve measures of security, international payment, and automation of a lot of processes that were done by hand. Given the various possibilities Fintech presents, implementing blockchain for businesses proactively presents an advantage in efficiency and customer satisfaction. But, the growth and success of blockchain is only imaginable through the right integration, and compliance with upcoming policies and guidelines. Over time as this technology evolves it can only open up new opportunities, meaning there will be a more efficient financial space that can accommodate all. The constantly evolving nature of Fintech via blockchain technology will not only revolutionize the financial services sector but will lead to innovation in IT and more financial inclusion globally.

How Quickway Infosystems can help?

Quickway Infosystems can assist businesses in shaping the new financial technology (Fintech) through the application of blockchain technology. With banking solutions changing with the introduction of blockchain and its influence on financial processes, Quickway Infosystems presents advice on implementing the decentralized system that ensures the scalability of the security, transparency, and efficiency of the company’s functioning. Arguably, the largest concern in Fintech is the need to guarantee security and manage fraud, an aspect that blockchain performs especially well due to its capability to create an unalterable record of transactions and encoded techniques. 

Quickway Infosystems can help the Fintech firm to solve such problems by creating blockchain solutions that are unique to the needs of a Fintech company since the contracting parties are now able to have secure digital wallets, a reliable cross-border payment system, and secured blockchain-based financial contracts. Further, Quickway can offer preferred blockchain functionality in real-time settlement with lower fraud and counterparty risks compared with other solutions. In addition to security, blockchain can enhance trust because it provides more transparency, which for Fintech firms can mean providing clear, traced records of the transactions. 

Through their services, Quickway is also capable of assisting financial institutions to implement smart contracts, which enable contracts for each transaction to be made without any third-party assistance hence cutting down on cost as well as on operational blunders. Furthermore, Quickway Infosystems can help organizations navigate compliance issues related to blockchain implementation and guarantee that all the concepts provided are under standards as well as state regulations. In that context, Quickway Infosystems utilizes blockchain not only to assist Fintech companies in changing their goals and ensuring that they use this potentially revolutionary technology to its maximum capacity but also to help them maintain a competitive advantage when more and more financial industries become influenced by technology.

FAQs

1. In what ways does blockchain enhance the security of Fintech?

The use of blockchain in Fintech increases security since it uses cryptographic methods to develop unique and invulnerable transaction registers. Every transaction is protected with a hash and connected to previous transactions; hence, it is almost impossible to modify any information in the system. This makes the financial transactions open and secure since the hackers’ attempts and unauthorized people cannot access that part of the database.

2. Is it possible to make cross-border payment easier through blockchain?

Indeed, blockchain technology can change cross-border payment systems due to the reduction of third parties and the time and cost used in making the payment. In decentralized networks, blockchain allows for direct, one-party-to-another real-time funds transfers without the need for any conventional banking services and their charges. It means that the transfers of money internationally are made more effective, cheaper, and faster.

3. How does blockchain enhance the process of lending to be efficient and transparent?

Smart contracts make the lending process to be transparent and efficient through the use of a blockchain. Many of these contracts cover the lending process right from the point of the lending up to the point of repayment with no need for third-party intervention, thus cutting out any possibility of fraud. Also, Defi lending platforms are more transparent and approachable than centralized lending platforms which in turn create more avenues for borrowers and lenders.

4. To what extent can blockchain advance the concept of regulatory compliance in the Fintech industry?

The application of the blockchain contributes to improving the approach of implementing regulations in Fintech since it guarantees the integrity of the records of the transactions made. By using this decentralized ledger, regulators can easily check compliance with legal and regulatory issues, thus minimizing the need for deep audits and documentation. Furthermore, through its inherent cryptographic properties, blockchain guarantees the credibility of financial information and thereby increases reliance on, for example, the reporting of regulatory and compliance data.