Are you aware that the FinTech industry is experiencing a robust growth of over USD 194.1 billion in 2022? In fact, sources state it should undergo an even whopping expansion of over USD 492.81 billion by 2028. But this is not the only fascinating part. Even more intriguing is the presence of blockchain in FinTech – I heard that right! The FinTech industry has successfully been captivated by the terrific impact of blockchain technology for bringing about revenue, delivery process, boosting end-user experience, and more.
Blockchain’s use cases have expanded miraculously in finance, and today FinTech holds the lion’s share of the blockchain market, expected to culminate at a valuation of $36.04 billion.
This article will cover in detail the blend of both FinTech and blockchain.
When blockchain and finance collide: A bold new world of FinTech possibilities arise.
The State of the Financial Industry: Challenges and Opportunities
There has been a remarkable evolution in the financial sector, especially in meeting digital requisites. Fintech meetup is a fantastic platform for gaining insights about development. The last few years are spectators of how seamlessly met customer demands. But growth comes with struggle and opportunities. Let’s discuss this.
Challenges of the Financial Services Sector
The following are the typical grinds encountered by the financial industry at present.
1) Erasing Possible Data Breaches
If there is one prime industry targeted by cybercrime, it is the financial industry. Despite the majority of the world’s industries being concerned about cyber attacks, IMF states that the maximum financial supervisors have still not devised cybersecurity regulations or developed vital resources for safeguarding. A survey of 51 countries shows that 56% of the central banks or supervisory administrations lack a national cyber approach for the financial sector.
2) Making Headway in the Era of FinTech
Only some financial firms are thoroughly aware of what does FinTech stand for. This is backed by PwC’s survey stating that respondents contemplated a quarter of their business being taken by the FinTech companies in a few years. The traditional biggies are still searching for the perfect way to be equally competent in the current FinTech market.
3) Meeting Diversified Customer Expectations
Customers demanding personalized financial services during FinTech blockchain is one of the biggest struggles. They are more inclined towards knowing the breakdown of their spending patterns, advice on handling money, etc. Some people still wish for an in-person banking experience alongside a digital one.
Opportunities of the Financial Services Sector
The Blockchain FinTech industry certainly has many options to look forward to.
1) Presence of Artificial Intelligence, Automation, and the Cloud
To be ahead of the game, one needs to keep up with the FinTech trends, and one of them is implementing AI, automation, and the cloud in financial services. Through this implementation, one can advance their technological game and meet ever-increasing customer demands. Shifting to on-premise services like the IVR system ensures that the updates are available in real time.
2) Optimization of Customer Service
Nothing can beat the reputation of a financial company that keeps its customers at the helm. McKinsey stated that banks that undergo the maximum customer satisfaction experienced a deposit and witnessed their deposit grow by 84%. Therefore, virtual assistance, 24*7 service, knowledge bases, conversational IVRs functioned with texting, etc., are ways to advance customer service.
Understanding Blockchain Technology
To understand the relationship between FinTech and Blockchain, it is essential to grab a good idea about the latter in depth. Blockchain can be described as a shared, unchangeable ledger that streamlines the approach of registering dealings and tracing assets in an organizational network. An asset can be tangible – like a car, cash, land, property, etc.- or intangible – like copyrights, branding, patents, etc. In simple terms, a blockchain network can trace down and trade anything holding value, thereby lessening the possibility of risk and cutting costs.
History of Blockchain Technology
Blockchain technology has its roots in the development of Bitcoin, the first decentralized digital currency. The concept of a decentralized ledger that could record and verify transactions without the need for intermediaries was introduced in the Bitcoin whitepaper in 2008 by an unknown person or group using the pseudonym Satoshi Nakamoto.
Since then, blockchain technology has evolved to become a key innovation in the digital economy, with applications beyond cryptocurrency, such as supply chain management, voting systems, and digital identity verification. Today, blockchain is seen as a potentially transformative technology that could revolutionize many industries, including finance, healthcare, and real estate.
2008 – 2011
- The concept of blockchain technology was introduced in the Bitcoin whitepaper by an unknown person or group using the pseudonym Satoshi Nakamoto.
- An online purchase was made using 10,000 BTC, marking the first recorded use of bitcoin for a transaction.
2012 – 2015
- The bitcoin marketplace surpasses $1 billion.
- Ethereum, a blockchain-based platform that enables the creation of smart contracts and decentralized applications (DApps) was launched.
- The first blockchain-based platform for decentralized marketplaces, OpenBazaar was launched.
2016 – 2018
- The first interbank blockchain platform, Ripple, was launched, aimed at facilitating cross-border payments.
- Many large corporations began exploring blockchain technology, leading to the formation of various consortia and partnerships.
- 15% of financial companies use blockchain technology.
- 95% of companies are willing to invest in blockchain technology.
- Governments and central banks started exploring the potential of blockchain technology for creating digital currencies, leading to the emergence of central bank digital currencies (CBDCs).
- The COVID-19 pandemic accelerated the adoption of digital technologies, including blockchain, as companies and governments sought to digitize their operations and supply chains.
- The use cases for blockchain technology continued to expand, with increasing interest in applications such as NFTs, DeFi, and digital identity verification.
- The cryptocurrency market cap hit $2 trillion with >70 million crypto wallets in use.
- The blockchain marketplace is forecasted to exceed $10 trillion by 2030.
- The potential impact of blockchain technology is anticipated to be widespread across industries and geographies with internet access, potentially leading to significant transformation.
Blockchain in Financial Services
The contemporary corporate sphere witnessed several fintech companies gaining prominence, and this expansion began in the early 2000s. The good news is blockchain game development is found in blockchain game development. The last few years have been revolutionary for these firms since they successfully incorporated modern technology and client-focused ideas for resolving the financial crisis.
Satoshi Nakamoto, in 2008, introduced Bitcoin as an electronic cash system that doesn’t rely on reliable third parties. Blockchain impact was implemented in Bitcoin transactions for the first time in 2014. A study in the year 2015 was arranged by the R3 consortium of prominent banks and financial institutions to discuss the competence of blockchain in reshaping the financial industry. In a year, the test was successful and issued a report.
Walmart and IBM associated with implementing blockchain as a substitute for verifying a food poisoning outbreak sourced from contaminated romaine lettuce. With the help of the blockchain system, the company could track back the affected lettuce to its source within as less as 2.2 seconds compared to the general six days required.
This technology has the power to disrupt a massive part of the financial sector, quite similar to the operational boost Microsoft offers in its .NET 5.0. It provides excellent supervision in the creation of FinTech apps that aid in transforming everyday financial processes into entirely transparent ones.
With the adoption of blockchain technology, the FinTech industry will soon be nearing eminence.
Benefits of Blockchain in FinTech: Security, Transparency, and Efficiency
As can already be perceived from the fact that the amalgamation of FinTech with blockchain is producing a massive transformation in the financial front. And the most satisfactory way to comprehend how this technology has revamped the FinTech industry is by picking the critical areas of the economy.
1) Bankless Financial Administration
This holds the first place because of all the worthy reasons. With the advent of blockchain in the FinTech industry, it has become quite convenient for cryptocurrency holders (Bitcoin, Ethereum, etc.) to manage their money using blockchain digital wallets. The good part is that these wallet holders are guarded by private keys and possess personalized public addresses, enabling them to deliver and receive payments with others.
2) Swift Transaction with No Middleman
Do you want to avoid encountering the prolonged annoying fund transfer process through traditional banking routes? If yes, the blockchain disruption will likely delight you with its advanced money-sending process. Blockchain can help deliver or receive your money within a few minutes compared to a few days. It regards as a stable foundation for stable and swift FinTech apps. Moreover, premium FinTech apps have the power to lay forward an error-free, feature-rich, and transparent transaction base.
3) Increased Swiftness and Reduced Cost
With the incorporation of blockchain in your organization, you can cut down on an immense amount of cost and experience an equivalent increase in speed. In case you’re interested in opening a small business, applying for a license is mandatory, and that includes undergoing a tedious and complicated process. The financial institution will draw your bank account information to operate this, limiting the number of businesses that can approach the service. But, with the blockchain system, accessing ample information is possible without human interference. You can start your business and apply for a license without taking numerous sick days.
4) Reliable Digital Identities
Security is one of the foremost facilities offered by this technology. Presently, this technology has enabled robust networking for money exchange. Suppose a blockchain development company promises to launch a secure registration process in the coming days. In that case, the end-users won’t have to stress about the transacting party. The user doesn’t have to stress about accidentally dealing with the wrong person.
5) Handling a Massive Size
Blockchain in financial services has also gained popularity because of its ability to handle massive financial transactions. Regarding volume, blockchain platforms are highly competent in managing a wide range of transactions without slowing down, which is undoubtedly a competitive application advantage.
6) Immense Transparency
Blockchain carries a high level of transparency in conducting its financial operations. This technology exercises regulations, mutualizes criteria, and shared procedures. This acts as the sole share medium of expansion for the network participants. Through the technology’s implementation, there is a boost in data integrity and customer experience backed by faster processing.
7) Enhance Efficiency and Security
The use of blockchain technology can potentially increase the efficiency and security of financial transactions, as each transaction is recorded and verified by a decentralized network of computers rather than a single centralized authority. This can reduce the risk of fraud and errors in financial transactions, while also providing greater transparency and accountability.
Will Fintech And Blockchain Substitute Traditional Financial Institutions?
Let’s focus on one of the most significant questions – will there be any scope for a traditional financial institution in the forthcoming days with the increasing dominance of blockchain technology in financial services industry? After a specific analysis, it can be ascertained that the traditional financial sector will not completely vanish, and some reasons exist to back it up. The best way to understand this is through this example: If you wish to utilize a bank account for averting fraud and theft, there is nothing better than operating through the banks.
That is one of many points, if you wish to store some cash, then the only reliable way trusted by most of the audience is through a stable currency. The Blockchain system is often considered unstable due to cryptocurrency market volatility. And finally, numerous people just aren’t content and comfortable enough to thoroughly use blockchain as their ultimate financial medium.
But, despite all these facts, there will still be a massive escalation in blockchain technology in FinTech a. One of the main reasons is that traditional financial institutions can cut down on an immense amount of their costs. Thereby, the world will witness a boost in more effective services. Therefore, biggies like Google, Apple, eBay, Amazon, and even start-ups have started incorporating the technology.
The following banks have begun concentrating on the blockchain disruption and implementing the same:
1) French investment bank – BNP Paribas stated how it would start focusing on implementing the technology in its currency funds and order processing.
2) Nasdaq stated how it incorporated blockchain to save time, cost, and more.
3) Spain-based Banco Santander (SAN) is already operating internally to create blockchain-based solutions to lower costs by $20 billion annually by the end of the decade.
4) Barclays is considering blockchain for finance as ‘transformative’ and testing internally and through partnerships to employ it as a financial service.
The destiny of blockchain in the FinTech industry is unquestionably magnificent, and the whopping valuation backs this that it will supposedly reach by the year 2023 – USD 6700.63 with a CAGR of 75.2%.
Overcoming Barriers to Blockchain Adoption in FinTech
Incorporating blockchain in FinTech can take time and effort, leading to different obstacles. This section will discuss the common challenges and ways to settle them.
Quite certainly, the first concern that will slide into your mind is the total amount of cost you need to incur. Since blockchain is still an alien to several industries, including the financial, getting a thorough idea of the entire cost can be challenging.
To handle this issue, you must first analyze your situation and decide which blockchain service you need. Do wish to wish to put forward crypto custody? Or, do you want to adopt blockchain to boost your internal process? Then proceed by creating a robust business case where you would answer questions like how the blockchain system would develop a revenue or lessen expenditure. Answering these questions would bring you resolution.
2) Conformity and Regulation
Though blockchain’s decentralized nature comprises benefits, it challenges compliance and regulation. Financial institutions are anyway habituated to adherence to stringent rules and laws. And blockchain’s volatile nature has made it even more necessary to have a robust regulatory framework for averting criminal activity like money laundering.
To avoid all these possible issues in the financial services sector, always look out for new regulations coming into action. This guarantees that your organization tends to remain compliant.
3) Corporate Culture and Bureaucracy
Blockchain adoption usually involves a distance from traditional centralized processes. This also demands a certain level of uniqueness to unite it successfully. Financial institutions must understand that blockchain disruption advantages outweigh the integration struggles and costs. Banks might need to associate with Decentralized Autonomous Organizations (DAOs) closely.
The solution to this issue is staying driven in backing this shift. Institutions need to assist the teams in performing collaboratively in a less hierarchical manner than they previously were. The focus needs to be laid on which technology will affect and assist them in understanding how the integration of blockchain in financial services would be advantageous to them.
Popular Solutions of Blockchain in FinTech
After gaining some insights about FinTech and its association with blockchain, let us get glimpses of real-life examples.
Robinhood is a reputed organization that has ideally linked FinTech with blockchain technology. This organization developed a mobile app that offers users a seamless way to invest in stock funds, cryptocurrencies, and more without extra fees.
WeTrade, this platform is a creation of IBM in association with 12 reputed European banks like HSBC, Nordea, KBC, and CaixaBank. This platform employs blockchain as a single database that permits all the counterparties to retrieve similar details concerning trade dealings.
This is again one of the best FinTech organizations providing blockchain-based payment solutions. Through the CryptoPay, users can alter their bitcoins into US dollars, British Pounds, or Euros and share them with their friends or even receive a prepaid debit card for making purchases. If you are interested in the NFT rage, you might be interested in trying this platform out.
Key Market Players
The presence of blockchain has dramatically disrupted the financial services sector. This radical change can be witnessed by the real-life cases of blockchain integration done by the following reputed companies.
1) Chain Analysis
Chain Analysis, it is a New York-based firm founded in 2014, bringing clarity to a blockchain-based global economy. It offers software services, data, and research to government agencies, investment firms, insurance companies, and more. It is famous for its fraud detection software, blockchain security software, blockchain platform, crypto tool, and compliance software.
2) JP Morgan Chase
JPMorgan Chase developed its own blockchain platform called Quorum, based on Ethereum. The Interbank Information Network (IIN), built on Quorum, has attracted more than 400 banks globally, aiming to reduce delays and costs associated with cross-border payments. JPM Coin, another initiative by JPMorgan Chase, is a digital token designed to facilitate instant payment transfers between institutional clients.
The sole aim of this company, founded in 2018, is to enable the management of digital assets and cryptocurrencies to be reliable and convenient. The audience may utilize this platform for gathering, transferring, and issuing digital assets across the sphere. Fireblocks is one of the most recognized platforms in the financial services sector since several cryptos, web3, and digital asset enterprises count on this.
Visa has implemented blockchain technology in its business-to-business (B2B) payment services. Visa B2B Connect is a cross-border payment platform that leverages blockchain technology to streamline B2B transactions, reduce complexity, and improve security. By using a distributed ledger, Visa B2B Connect can offer faster and more transparent payments between businesses.
Mastercard has been actively exploring blockchain technology and holds several blockchain-related patents. They have developed a blockchain-based system to enable faster, secure, and transparent B2B payments, aiming to improve cross-border transaction efficiency. Mastercard has also joined forces with R3, a company specializing in blockchain software, to create a pilot project aimed at developing a novel blockchain-powered solution for cross-border payments.
It is a known fact by now that the FinTech blockchain is bringing about a revolutionary storm that ought to cut out the limitations experienced by traditional banking. With the implementation of blockchain in FinTech, a considerable chunk of the audience can utilize a wide range of financial services. It benefits the countries undergoing economic issues, underprivileged, and similar concerns.
If you are new to blockchain in financial services, Algoworks might be the ultimate coach for simplifying the same. Besides mentoring the Salesforce financial services cloud, the organization is adept with the ongoing blockchain and FinTech trends.
About Us: Algoworks is a B2B IT firm providing end-to-end product development services. Operating chiefly from its California office, Algoworks is reputed for its partnership with Fortune 500 companies such as Amazon, Dell, Salesforce, and Microsoft. The company’s key IT service offerings include Mobility, Salesforce consulting and development, UI UX Design Consultation, DevOps, and Enterprise Application Integration. For more information, contact us here.
1) Is FinTech a part of blockchain?
Blockchain is a highly-demanding fundamental technology in the sphere of FinTech. The original concept of blockchain concentrated on the cryptocurrency ‘Bitcoin’.
2) What are the advantages of using blockchain technology in FinTech?
The following are some of the benefits:
a) Swift transactions
b) Lessened cost
c) Digital currencies
d) Advanced data quality
e) Advanced security
3) Is FinTech and Crypto similar?
FinTech comprises the development and utilization of cryptocurrencies like Bitcoin. Though that part of the FinTech industry is most popular, the massive amount of money still lies in the good old traditional banking.
4) What are the common types of FinTech?
The following are some of the common types of FinTech:
b) Personal financial management (PFM)
f) Embedded finance
5) What future does blockchain behold in FinTech?
Blockchain is an incredibly beneficial medium for boosting the FinTech industry and making it more reliable. It majorly happens because of the decentralized nature and cryptographic security features.