Blockchain in finance and fintech: the future of financial services
Blockchain can improve the security, efficiency, cost-saving and transparency of financial services. It offers a unique, secure relationship between payers and payees, without third-party interference.
Blockchain helps avoid banking fees and is much faster than standard bank transfers. It is convenient, as you can do everything from your laptop. There are no queues, and transactions are almost never interrupted or stopped. Even banks nowadays rely on the concepts of blockchain to record data.
That’s why cryptography is here to stay. Blockchain offers transparent oversight of financial transactions.
How does the digitalisation of financial instruments impact finance?
Digitalisation in fintech improves efficiency by reducing human error and increasing processing speed. It provides online banking, faster and cashless transactions, and simpler end-to-end transfers. With increased transaction speed, it will also attract more customers and revenue.
Many senior leaders believe that all sectors must adopt digitalisation. The demand for online activities is increasing throughout the world, according to many statistics.
Reasons for blockchain’s popularity in the finance industry
Blockchain is popular in the finance industry as it is safe, fast, and accessible. Each transfer can be tracked, and there are no corrections in the process. It’s the most secure network of transactions widely available today.
- Security and privacy
Being decentralised, Blockchain doesn’t store information on a central server. Instead, it is kept across many computer networks that constantly check transfers’ validity.
Why is that more secure? Since there is no single server, hackers or viruses would have to break into each blockchain node. This is troublesome – there are over 80,000 active nodes in the Bitcoin network alone.
Now just imagine the whole blockchain network, which is much larger. One node requires days of non-stop computing power to hack into. Hence, banks and many financial institutions see Blockchain as secure and private.
Once a transaction occurs and everyone acknowledges it, it can’t be altered or changed. This means that it can be automated and relied upon. It can be further programmed, and the benefit of it is that money transfers are secure.
Full programmability would be achieved if users could choose the preferred type of transactions. Smart contracts enable complex deals when users create their own types of transactions.
High-performance blockchains will solve key issues such as latency and low transactions per second. An example is accelerated hardware computer chips with specific software.
Most popular blockchain use cases in financial services
Many industries use blockchain. Its security, easy access and fast transfers can find applications anywhere from banking, transportation and sales to tax collection.
Below are some applied cases in capital markets, asset management, remittances, and trade.
- Capital markets
Issuers, fund managers, investors, and regulators use Blockchain in sales, settlement and exchange industries. Issuers have easy and fast access to the network, fund managers have faster and more transparent transactions, investors have more options to invest, and regulators can check previous transfers as no one can delete them.
- Asset management
In asset management, transfers information is held in a fast single system that is widely accessible. This increases transparency and allows for better transactional updates and automation of operations.
- Payments and remittances
There are no intermediaries in the blockchain remittance industry. The process is fast and simple.
Worldwide financial transfers are charged at 7%, which translates to billions of dollars in transfer fees. Blockchain would clearly be more cost-effective, and cryptocurrencies such as bitcoin are already used as an alternative payment method.
- Trade finance
Blockchain in trade finance offers many benefits. These include security, speed, financial status, and more trade participants.
Financial institutions would have more control and visibility of transactions. There could be swift financing approval that would save time for users. History and investment positions would be clearly visible, which means better planning.
Another benefit is the inclusion of small and medium-sized firms who would otherwise be unable to afford the high costs of transferring money abroad. The number of transactions and users would skyrocket, especially with high-performance blockchain engines.
Will blockchain become the main technology in the financial industry by 2025?
Blockchain uses end-to-end encryption. Based on cryptography, it increases the security and speed of financial transactions. It also provides transparent and easily accessible transfer data to all users.
The only downside is in the investment that is required in intellectual capital and infrastructure. But in the long run, the benefits will outweigh the cost of implementing the technology.
Blockchain is going to benefit many supply chains and mainstream businesses worldwide, and lots of firms report that they are in the pilot phase of implementing the technology. The network is reliable and transparent. This should increase sales, operations, finance and many more industries.
Among the companies implementing blockchain today are Tesla, Toyota, Apple, Facebook and Google.