How Blockchain Technology Can Revolutionize the Fintech Industry

Did you know blockchain technology has opened up a world of opportunities for the fintech sector? By using blockchain technology, this sector can lower costs, automate processes, expand its reach, and improve data transparency. And that's only the very beginning.

The fintech blockchain market is predicted to cross $36.04 billion by 2028, highlighting the potential of blockchain technology in finance to boost revenue and enhance security for both businesses and consumers.

Want to know more? Stay tuned because, in this blog, we will discuss:

Advantages of Blockchain in the Fintech Industry

Blockchain has made business networks open and inclusive, resulting in faster, more customized, and less expensive digital security.

Below are the advantages of blockchain in the fintech industry, transforming traditional practices and enhancing efficiency & security:

1. Transparency

Blockchain technology uses mutualization, shared procedures, and protocols to help all network participants grow. It increases client experience and processing while preserving data integrity.

2. Security

Blockchain in finance has made it possible to create secure app codes that protect against malicious and third-party activities, making it nearly impossible to hack.

3. Trust

The transparent ledger allows stakeholders to handle data collaboration and create agreements. Blockchain, a distributed ledger technology, is used to securely record, manage, store, and send transactions across different industries.

4. Privacy

Blockchain allows financial industries to selectively share data by providing them with market-leading tools for data privacy across different software stacks. It preserves privacy and confidentiality while enhancing transparency and confidence.

5. Programmability

Blockchain helps develop and operate tamper-proof smart contracts. These contracts automate corporate processes for better programmability, efficiency, and confidence.

6. Better Performance

In finance, blockchain is made of private and hybrid networks to handle multiple transactions per second. It provides companies with exceptional resilience and worldwide reach by completely supporting interoperability across public and private sectors.

[Also Read - Blockchain Development Guide: Everything You Need to Know in 2024]

Challenges in the Fintech Industry Addressed by Blockchain

Wondering what challenges in the fintech industry are addressed by blockchain? Below are the common challenges:

1. Dependency on a Centralized System

Fintech transactions require third-party approval, which leads to delays and dependency on higher authorities. Blockchain has transformed this process by decentralizing transactions. As the transactions are confirmed by a network of nodes instead of a single authority, the centralized control gets further reduced.

It gives customers more control over their transactions and quicker confirmations, reducing dependency on centralized organizations and boosting the financial ecosystem's effectiveness.

2. Limited Service Availability

In certain situations, access to fintech services gets restricted. For instance, when a user travels, their access to an app gets restricted due to technological limitations or regulatory constraints imposed by the company. A business might also lack physical locations or remote support employees.

Thanks to blockchain technology, fintech businesses can function without being restricted to traditional banking systems. Decentralized applications, cryptocurrencies, and smart contracts allow clients to perform activities from any place.

3. Security Risks

One of the best benefits of blockchain in fintech is helping with security risks. That’s because increased security risks have become a major concern in the financial industry.

Security threats can be internal (like a lack of cybersecurity awareness among employees) or external (like cyber-attacks). Compared to other industries, the financial industry is most vulnerable to cybercrime.

These are the three characteristics through which blockchain reduces cybersecurity risks:

4. Lack of Traceability

Fintech companies have traceability issues with traditional banking systems. Even basic processes require several intermediaries, which makes tracking more difficult. Not to mention, traditional systems have a high degree of centralization, which leads to transparency issues.

Blockchain technology solves this issue by offering unmatched traceability through a decentralized and publicly accessible ledger. Complex algorithms and consensus protocols are used to record all transactions. It allows auditors to easily confirm fintech activities and consumers to examine each transaction on the network.

5. Slow Processes

In traditional fintech systems, settlement can vary from a few hours to several days due to the presence of several intermediaries and the need for human processing.

Blockchain saves businesses time by streamlining authorization and verification processes, which speeds up settlement. It also reduces the time required to process transactions and validate payments.

What’s in it for customers? Well, they benefit from quicker and less expensive banking transactions. Banks can also instantly process payments, further saving money by not having to maintain multiple departments.

[Also Read - The Role of Artificial Intelligence in FinTech: Revolutionizing Customer Experience and Risk Management]

How Blockchain is Improving the Fintech Industry?

Within the fintech industry, blockchain has revolutionized various sectors, enhancing efficiency, and offering innovative solutions:

1. Banking and P2P Payments

Most banking systems have careless bureaucracy, which causes issues when clearing and settling departments of the banks.

These gaps can be avoided by using a decentralized system that follows consensus algorithms for quicker transactions. But what causes the gaps? Well, the gaps are caused by primitive methods of banking and the participation of hierarchy at several levels.

Today, banks are aware of the advantages of blockchain technology, such as reduced transaction costs and faster transaction times. This is motivating financial organizations to switch to digital currency.

Additionally, the payment system that we use today is not effective, highlighting the need for an alternate payment method with cryptocurrencies.

2. Trading and Trade Finance

Did you know that trade finance still relies on documentation sent out globally via postal service? It means stock and share purchases go through a lengthy process that includes clearing, settlement, brokerage, and exchanges.

Settlement takes three days, but it may take longer on the weekends because each trader has to maintain their databases for all transaction-based documentation.

Traders can avoid hectic counterparty checks and optimize the entire lifecycle through the integration of blockchain technology into financial services. This decreases risks and improves settlement procedures.

3. Crypto Lending

In the banking industry, crypto lending offers a fresh, effective, and transparent lending procedure.

When applying for a fiat-based or stablecoin loan, borrowers can keep their crypto holdings as collateral, while lenders provide necessary assets at a predetermined interest rate. It also functions in reverse. It means borrowers can use their fiat money or stable coins as collateral.

4. Regulatory Compliance

With the demand for regulatory services expected to increase, fintech companies are likely to adapt to blockchain technology to enhance regulatory compliance.

They depend on this technology to monitor transactions and document actions taken by associated people. It saves regulators the trouble of having to verify the authenticity of the record. It also helps regulators examine the actual papers rather than numerous duplicates.

Additionally, blockchain’s immutability feature reduces errors and guarantees the accuracy of records for financial reporting and audits.

5. Digital Identity

While banks do have strict KYC and AML procedures, the number of fraud accounts is increasing. Since there is no set procedure for clients to provide paperwork proving their identity, they are even more secure.

After completing validation, clients can use them to conduct transactions anywhere in the world. Not to mention, blockchain can benefit financial users as well:

Use Cases of Blockchain

Blockchain technology's distributed ledger, immutability, decentralization, and transparency are transforming the corporate world. Blockchain development companies have a clear understanding of this technology. Thus, they provide the best services to their clients.

Below are some real blockchain integration use cases:

1. Digital Payment

With features like cross-border transactions, tokenized currencies, and domestic wholesale settlements, blockchain allows smooth digital payments. Fintech firms use blockchain technology to offer safe payment options to consumers across the globe.

Real-world example: Coinbase gives customers the freedom to purchase, collect, and transfer digital assets while allowing companies to include cryptocurrencies for payments.

2. Trading

Decentralized finance (DeFi) platforms have made peer-to-peer trading possible without intermediaries. It guarantees safe and open transactions. From margin trading to decentralized exchanges, blockchain-powered trading systems give customers more control over their assets.

Real-world example: Uniswap, a decentralized platform, has made peer-to-peer trading possible, while Pax Gold tokenizes real gold to increase accessibility to gold investing.

3. Digital Identity Management

KYC procedures are streamlined via blockchain-based digital identification systems, which further improves security and privacy. By managing their identity data and sharing required information, users can decrease fraud and identity theft.

Real-world example: Blockchain-based digital identification solutions from Tradle and Civic help fintech companies meet KYC requirements while protecting user privacy.

4. Lending

Blockchain-backed lending systems provide lenders with quicker and easier access to loan options. In peer-to-peer lending and crypto-backed loans, fintech companies use smart contracts to streamline loan procedures and improve credit approval times.

Real-world example: Upstart provides P2P lending as an alternative to credit cards and loans, while SALT Lending allows users to receive loans via cryptocurrency as collateral.

5. Asset Management

Blockchain improves capital markets, private equity firms, and real estate funds' asset and stakeholder management procedures. Blockchain technologies enhance market access and optimize asset management through the digitization of portfolios, fund automation, and transparent transactions.

Real-world example: Bankex is an expert in tokenizing physical assets, allowing fractional ownership and more liquidity in conventional financial markets.

Popular Blockchain Fintech Solutions

Below are four popular blockchain fintech solutions:

1. We.trade

We.trade, an IBM platform, uses blockchain as a single database to integrate 12 major European banks, including CaixaBank, HSBC, Nordea, and KBC. It allows all counterparties to access the same information about trade transactions, further enhancing the system's security.

2. Circle

Circle is another finance company that allows customers to invest in a variety of cryptocurrencies, like Zcash, Litecoin, EOS, Bitcoin, Stellar, and Monero.

3. Robinhood

Robinhood uses blockchain technology to transform the fintech industry. Its mobile app allows consumers to easily invest in stocks, crypto, and stock funds without additional fees.

In 2018, the fintech business introduced a crypto platform where users could buy and sell virtual currencies like Dogecoin, Litecoin, Ethereum, and Bitcoin.

4. CryptoPay

CryptoPay is one of the best fintech firms that provides amazing blockchain-based payment options. The website lets users send their bitcoins to friends, exchange them for US dollars, British pounds, and euros, or receive a prepaid debit card for purchases. It protects consumers' money from market changes and makes currency exchange easy.

How Protonshub Technologies Can Help You?

Do you have an excellent fintech app idea in mind? Let Protonshub Technologies help you. Our dedicated team of blockchain experts uses the most advanced technology to improve the customer experience, blockchain for payments, and business performance.

So, no matter how complex or simple your fintech development project is, you can always rely on us. Don’t wait anymore. Contact our fintech experts today and start developing your project!

Frequently Asked Questions

Ekta Singh

"Senior Content Writer"

Ekta Singh is a rookie food experimentalist and k-drama fan with 4+ years of experience in writing. Bridging gaps between companies and customers through conversion-driven content is her forte. She believes in writing stories for a living and living life for exploring places.