7 Ways Blockchain is Revolutionizing in Fintech

Blockchain has been widely adopted across many industries since its initial release. It is a distributed ledger technology that can be used by many people and communities. Blockchain technology stores data records in a chain of blocks, without the need for a middleman. Blockchain technology is one of the most secure technologies that the world has ever witnessed, as the records stored in it are immutable.

This security is what the fintech industry has long awaited. Fintech has pioneered efforts to lower transaction costs. Blockchain is the ideal solution to eliminate middleman transaction costs. This is not the only application of blockchain in fintech. There are many others.

We'll be looking at some primary fintech applications. Before we get into the applications let's first look at the reasons why blockchain is so important for the fintech industry. Are the benefits of blockchain security enough to justify its use?

Fintech and Blockchain: A Marriage Made in Heaven

Blockchain is essential for the fintech industry. Security is not the only reason. Fintech companies often have trust issues. They invest large sums of money to build trust and a network that facilitates financial transactions. This indirectly raises middleman transaction fees. A McKinsey study shows that transaction charges are responsible for $40 billion in annual revenue to remittance firms.

This is where blockchain comes in. It is secure and affordable. It eliminates intermediaries and allows for savings on transaction fees. It is this reason that around 77% in the finance industry envisioned adopting blockchain by 2020. This will make it the technology for the future.

What Are the Different Blockchain Applications In Fintech?

The fintech applications that use blockchain technology to create trust and security are capable of revolutionizing the industry. These are the main use cases that can easily be incorporated into fintech.

1. Transfers without middlemen

Transaction fees are charged by financial regulators for the use of our money. Although the money is ours, the majority of regulations and terms are enforced by the central authorities. Blockchain apps allow money to be transferred anywhere in the world with significantly lower transaction fees. Blockchain eliminates intermediaries and removes all additional costs. Blockchain's decentralized structure allows us to have complete control over our money.

2. 2.Digital Identity Verification

Blockchain allows users to manage their digital identities. After completing the registration, users can transfer funds or other data quickly and securely with their private keys. This eliminates the risk of sending money to an uninformed person. End-users won't have to worry about the identity of the recipient.

3. Smart Contracts

One of the most powerful uses of blockchain technology is smart contracts. These are simply pieces of code that execute automatically when the conditions are met. It introduces integrity to the network chain through the auto-implementation function. The loans department will provide an easy-to-understand example of smart contracts.

Let's say a customer gets a loan from a financial company. A smart contract can be created by the company with agreed-upon terms and conditions, including interest, terms, or both. The smart contract will automatically be activated if the customer fails to repay the loan within the agreed terms.

4. Trade Finance

Many people have used trading as a way to earn additional income. It requires brokers, Demat agents, as well as the stock exchange. There are also risks associated with it, as well as shady practices. This stock lifecycle can have many roles for blockchain:

This can remove many middlemen and make the process easy.

It makes stock cycle loopholes less likely by making it transparent.

It can also protect the stock exchange network via immutable data records.

5. 5. Faster Cross-Border payments

Even if you withdraw cash from an ATM at another bank, both banks must communicate with each other to verify and confirm the account status, details and amounts. It doesn't take long, and it is not difficult. Imagine the same thing with cross-border payments.

The gist of the story is that cross border payments can take a long time to process. Blockchain can help reduce this. Banks and other financial companies can connect to one blockchain network and upload any information required for transactions. Cross-border payments would be much easier and faster if this was possible.

6. Limit Cyber Fraud

Financial data is critical for fintech companies. Even a single breach could cost them a lot. The architecture of blockchain technology makes it one the most secure, if not the best, technologies. It uses cryptographic hash functions to store and transfer data.

The blockchain is a distributed ledger network that stores data in the form a chain. Anyone trying to hack into the network or steal data can't alter this ledger. This blockchain architecture can be used by the fintech sector to reduce cyber fraud.

7. Auditing: Secure Data Storage

The fintech sector is a key part of which review and auditing are integral. The audit process and paperwork take a lot time. Blockchain technology allows for the addition of blocks without affecting existing ones. This allows anyone in the finance industry to upload and access past data for seamless auditing.

Conclusion

Fintech applications that use blockchain technology in fintech can undoubtedly take the industry by storm. It is not surprising that there is a growing demand for blockchain developers worldwide.