Since its inception, blockchain technology has had a revolutionary effect on several industries. Data suggests that global spending on blockchain will rise to $19 billion by 2024. This is up from 4.5 billion in 2020.
Remarkable, isn’t it?
One of the sectors greatly benefiting from blockchain technology is FinTech. This article covers four key ways blockchain is revolutionizing the FinTech industry.
1. Reducing Fraud
Blockchain is an immutable ledger that records transactions digitally—this is one of its most distinguishing features. Each time a transaction takes place, miners compete to verify and validate it by solving complex mathematical puzzles.
Upon finishing the transaction, they add it to the public ledger in data blocks. Here, it will be in everyone’s view.
So, how does this affect FinTech companies? It brings about transparency in the marketplace, thus reducing the potential for fraud. Additionally, smart contracts layered on top of a blockchain can facilitate and verify the negotiation or performance of a transaction. As such, many financial institutions are incorporating blockchain into their daily operations.
Blockchain technology also facilitates sending of transparent payments between businesses in real-time. Such a step is huge for the sector because legacy payment systems are often slow. One such transaction can take up to five days to clear.
For consumers, blockchain technology in FinTech improves their payment experience and enables secure peer-to-peer transactions in real-time with minimal transaction fees.
2. Record Storage and Management of Digital Identities
With blockchain technology, centralized databases to store and manage data are not necessary. Instead, the ledger stores only encrypted transaction records that can’t be tampered with.
As such, there are no gatekeepers that control access to sensitive information. This makes it easier for consumers to prove their identities, improving customer trust.
One of the biggest benefits that blockchain could have on FinTech is storing and verifying digital identities. Along with enhancing trust, it will also:
● Improve data management
● Simplify identity verification
● Reduce fraud
3. Reduces Intermediaries and Expedites Transactions
Blockchain also reduces the need for intermediaries for transactions to go through. Therefore, individuals and businesses can transact directly with each other. There is no need for any third party to verify, clear, or settle payments on their behalf.
Hence, businesses can operate independently of other companies in the finance industry.
In addition, blockchain technology enables financial transactions to be carried out in real-time. This is because it eliminates the need for verification by intermediaries. These may include banks, payment networks, and clearinghouses.
As a result, cross-border payments can take place at any time of day. Moreover, consumers do not have to wait several days before they clear.
For instance, Ripple, a FinTech company, uses blockchain as an enterprise-ready payments solution. Financial institutions now use Ripple to send cross-border payments. It’s convenient for them as a pre-funded intermediary isn’t necessary.
To enable real-time payments on their network, the company prices their cryptocurrency XRP low. This ensures that banks don’t have to wait days or even hours for an international payment to clear. Instead, a transaction can be sent, verified, and settled by the network within 3-5 seconds.
Without intermediaries, hundreds of financial institutions have adopted Ripple’s blockchain solution. Many of these institutions are also members of RippleNet. This is a global payments network that is powered by the company’s XRP cryptocurrency.
4. Regulatory Compliance and Audits
Today, most companies are required to adhere to a strict set of regulatory standards. These govern the way institutions handle and process financial data. In this regard, blockchain will be instrumental in regulation compliance.
For small and medium-sized businesses operating outside of major metropolitan areas, this has been challenging. This is due to the costs that come with a global compliance team on staff.
However, this is now changing. FinTech companies are now adopting blockchain-based solutions for cross-border payments and regulatory reporting. As a result, it is much easier for small businesses to adhere to global regulations. This is because there is no need for advanced technology tools or expensive consulting firms.
By Using public blockchains for data processing, FinTech businesses will be able to:
● Significantly reduce the costs of hiring compliance staff
● Meet regulatory reporting requirements
● Reduce the time it takes to process transactions and prepare reports
These are especially important in an era where customer experience counts more than ever before.
Matching Blockchain With the Right Talent
For FinTech companies, adopting blockchain technology can translate to growth acceleration. However, other elements will also play a crucial role in this. Key among them is the talent you bring in to actualize your vision.
Without the right people in your team, you won’t be able to capitalize on the tremendous potential blockchain technology offers. Martin Executive Recruiting is a recruitment agency that helps companies find top-notch talent. Get in touch with us today to find the FinTech talent that will help you scale.