How Blockchain is Revolutionizing The Fintech Industry?
Financial Technology, shortened as Fintech is one of the emerging and dramatically growing technologies in recent times. It has white washed the traditional finance delivery methods with new-age innovations such as Internet, mobile and cryptocurrencies . It has enhanced many facets of financial services such as payments, online trades, money lending, wealth management and more.
Though Fintech is gaining attention for all the right reasons, it does not fail to stumble upon its set of challenges. Fintech companies fall either into business-to-consumer sales model (B2C) or business-to-business model (B2B). Both these models face certain unique challenges. Industry experts have been persistent in looking for new and reliable solutions to solve some multi-layered challenges. Blockchain is one such tech that is revolutionizing the Finance industry. This blog aims to give some insights on how Blockchain technology is solving the biggest challenges in the Fintech industry.
What is blockchain?
As the definition goes, Blockchain is a type of decentralized and distributed ledger for maintaining a permanent and immutable record of transactional data in chronological order. Blockchain stores transactional data in a continuously growing list of records called blocks. Blockchain uses cryptography to link and secure these blocks. Each block typically contains three elements such as Hash pointer- link to the previous block, timestamp, Transaction data.
Blockchain in Fintech Industry
Challenge #1: Opportunity
Tech markets are often dominated by a small group of tech giants. Facebook, Amazon, Apple, Microsoft, Google are often referred to as the big five. These companies not only rule their respective industries but often head into support markets such as mobile apps, cloud storage, electronics, etc, which makes it even more difficult for new players to get a foothold.
Blockchain takes away the monopoly effect. The good thing is that no one owns the rights to blockchain. Any startup that wants to build their business model on the technology is free to do so. It’s even possible to raise capital through ICO’s (Initial Coin Offerings). This brings competition back into marketplaces which can decrease the prices, and gives customers more purchasing power. It also stretches the boundaries of innovation by giving more players a chance to take part in the game.
Challenge#2: One-party controls & fraudulent activities
Most traditional organizations are based on centralized management systems. That is, a central party that controls all business flows. This is difficult on two different levels.
First, high-positioned persons within an organization have the authority to influence business systems and transactions for personal gain, rather than the greater good of the employees and customers.
Second, in today’s market, data is bullion. With centralized systems, sensitive customer data is held in central servers. This means that a single security breach gave hackers access to millions of records, which can be damaging to the company and its customers.
The decentralized nature of blockchain gets rid of these risks. Consensus on a decentralized platform is reached by the different network participants agreeing. Decisions are therefore not based on a single central party but a group of users that would normally have a vested interest in the well-being of the company. Data is also not held in one place, but spread out and encrypted over the network. Therefore, for a fraudulent attack to be successful, hackers will not only need to know exactly where each piece of information is located on the global network but also get access to the different pieces at the same time. It is impossible.
Challenge#3: Cost Control & customer experience
Traditional banking is fairly expensive. There are several intermediaries and third-parties involved in ensuring the reliability and security of everyday transactions at any major bank. Unfortunately, the costs of these services are often paid by customers.
Adopting blockchain can be streamlined customer transactions. It’s not only making it cheaper but also safer and faster to send money between users. This is attained by transacting over a secure, blockchain-based network and therefore eliminating the need for intermediary entities. It improves the customer experience. Fintech benefits greatly from the capabilities of blockchain systems.
There is no doubt in saying that Blockchain is the backbone technology which is revolutionizing the Fintech industry. And as the financial service industry is moving from the exploration phase to the application phase, it is very important for the financial institutions to understand the role of Blockchain in the Fintech if they want to take advantage of financial revolution.
To discuss the Blockchain technology possibilities for your organization, please get in touch with us at firstname.lastname@example.org