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How Blockchain Is Transforming the Fintech Industry

By Special Guest
Alena Alekhno
December 22, 2020

Since its invention, blockchain has managed to spread its influence on a number of industries and has driven transformation in many businesses. From bitcoin trading software platforms to smart contract implementation — the range of blockchain opportunities is unique and diverse. Thanks to its outstanding features, like security, transparency, immutability, provenance, and decentralization, the technology has gained a lot of prominence and drawn the attention of many people. 

Blockchain development companies have come up with different enterprise blockchain solutions that are meant to deal with the challenges that a particular industry experiences, and bring about positive changes in it. The existing banking and financial industry is no exception, and it has already unleashed the great potential of blockchain technology. 

Fintech is considered to be a highly regulated sector. Millions of transactions are performed globally every single day. The financial system may be prone to frauds and flaws that can lead to an ineffective finance-management system. However, blockchain is here to ensure safety and security as well as contribute to the development of a robust and reliable financial system. As of today, a huge number of Fintech institutions have already adopted blockchain technology and the number of those interested in incorporating blockchain solutions into their processes is also increasing. 

You might wonder how exactly blockchain can shape the financial industry and what solutions already exist. In short, distributed ledger technology is being used in such processes as record keeping, money transfer, and banking backend transactions. It is also able to eliminate the unnecessary paperwork and allows to track transactions. What is more, thanks to its underlying cryptography along with distributed consensus, the technology offers complete trust. Another distinctive aspect is that blockchain does not require intermediaries’ involvement and you do not have to spend extra money on their rather costly services.

Just as importantly, there is one more essential part of blockchain — smart contracts. These are self-executing contracts concluded between a buyer and seller. The agreement and code are located on the decentralized blockchain network. Smart contracts are widely used when exchanging money or something valuable as they ensure smooth and transparent transactions.

That was a technical side of blockchain. Now let’s look into some specific Fintech cases where the distributed ledger technology is used.

1. Fraud reduction and risk management

Fintech is all about various money procedures, thus it is quite logical to assume that security concerns are appropriate and quite wide-spread here. In this case, blockchain proves to be the most workable solution. It is secure, transparent, reliable, and surely it cannot be corrupted. A blockchain system is able to eradicate even a possibility of cyber attacks and fraud. Besides, blockchain can also be used to resolve such an issue as high-value asset data tracking. For example, it prevents double financing and false claims. 

2. Cross-border payments 

Sending money to another country may be time-consuming and even costly. Blockchain, though, is perfectly capable of improving cross-border transactions and facilitating secure, transparent, fast and surely low-cost cross-border payments.

3. Financial regulatory compliance and audits

Financial companies are required to keep several records for years so as to address some regulatory issues (in case such arise). Given that blockchain technology is immutable, it can reduce risk possibilities and uncertainty connected with regulation. Once the data is stored on blockchain, be sure that it will be neither modified nor deleted. Regulators can rely on the technology, as it is also able to track verified transactions and records. Not only that, this advanced technology is able to eliminate error probability and ensure record integrity for audits, too. 

4. Crowdfunding

Crowdfunding means raising funds by involving different startups that attract a big number of people to contribute some money (usually a small amount) online. In the crowdfunding process, blockchain technology is viewed as a useful tool. For example, Initial Coin Offerings (ICOs) can assist startups in raising funds. ICO tokens that are produced on the blockchain platform are identical to companies’ shares. This actually means that people can buy and sell these tokens on crypto markets. 

When it comes to ICO benefits, it should be mentioned that ICO allows cross-border token selling. In addition, transparency as well as high ROI are also guaranteed. More than that, there also exist many other excellent possibilities for crypto crowdfunding, where mining pool software makes it possible to carry out smooth and fraudulent-free transactions. 

5. Syndicated loans

Syndicate loan processing has been dealing with a number of problems, like fax communication, some delays in settling loans and so on. Fortunately, blockchain technology can be of much help here. It is capable of establishing a trouble-free communication system between different financial institutions. As a result of this, any change happening in the loan ownership will then be instantly reported to all the participating parties. 

Several institutions have joined hands to create a special consortium in order to encourage blockchain adoption by implementing it in this particular field. 

All in all, blockchain technology is a real breakthrough of our times. It can provide a number of benefits to all industries, with Fintech being no exception. The cutting-edge technology has already successfully accomplished a number of tough tasks in this industry and is bound to take on more demanding challenges in future.

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