The demand for quick and convenient financial services is constantly growing. Advanced FinTech companies integrate blockchain into their systems to make their services secure and compliant.
Many FinTech companies turn to blockchain development services to improve their productivity. The technology allows organizations to streamline operations and cut costs. It also guarantees enhanced data transparency, quality, and immutability.
This article uncovers seven ways blockchain technology transforms the FinTech domain both for businesses and individuals.
Lower Operational Costs
In the traditional financial system, each transaction involves several parties, such as a merchant, a bank, and a credit card network. This also means each of these parties charges a fee for its services.
And the fees are even higher in the case of cross-border payments and currency exchanges, as they entail a more comprehensive network of financial institutions. As a result, a client may be charged conversion, correspondent, intermediary, and beneficiary bank fees.
Introducing blockchain into the FinTech domain can significantly reduce operational costs. Decentralized smart contracts and direct peer-to-peer (P2P) transactions allow FinTech companies and their clients to eliminate intermediaries and extra fees.
Blockchain also accelerates processing times, eliminating delays in payments. The system updates the data in real-time and ensures seamless and error-free operations. The technology helps avoid additional costs or loss of investments.
Limited Service Availability
Access to financial services in the traditional system can be limited due to technical capabilities or banking app bugs. Some banks lack physical branches or have inconvenient working hours. Certain regulatory restrictions imposed by the government or other controlling bodies can affect the scope of banking services as well. All of these factors significantly influence user experience and usability.
However, blockchain helps get around the above-mentioned restrictions. The technology offers cryptocurrency, digital assets, smart contracts, and decentralized applications. In this way, blockchain removes barriers and makes financial services accessible anytime and anywhere.
Security Risks
The major concern in the FinTech industry is protecting sensitive data against external and internal security threats. Cyber attacks and fraud are considered external security threats. Internal threats are system vulnerabilities connected with poor cybersecurity awareness, flawed access controls, and rapid adoption of new technologies without proper security measures and education.
Blockchain technology can minimize security risks and fraud while ensuring data security and protecting customer privacy. This is done through decentralization, encryption, and immutability.
Blockchain’s decentralization means all transactions are verified by a network of nodes rather than a single centralized authority. Each transaction in the network is protected by encryption and hashing. The data on the blockchain is immutable. This means altering data or operations requires the consensus of other nodes.
Advanced Traceability
Traditional financial institutions resort to multiple intermediaries, which leads to poor traceability and verification. Since such systems are centralized, they provide limited transparency and run the risk of tampering.
Blockchain, on the other hand, is a decentralized technology. The network is immutable and publicly available, which guarantees unprecedented traceability and transparency. All transactions are recorded and verified with the help of complex protocols and consensus mechanisms. This allows users and auditors to inspect and verify transactions and other financial operations within the network.
Accelerated Processes
The settlement process in the traditional financial system generally takes from several hours to several days. This is because the institutions use manual processing and involve multiple intermediaries and clearing houses.
Blockchain allows FinTech companies to accelerate the settlement process significantly. Organizations hire FinTech developers to minimize the time required for transaction processing and payment confirmation. Moreover, it streamlines authorization and verification.
Blockchain implementation allows banking institutions to cut overhead costs and speed up payment processing. And their customers, in turn, can enjoy faster and less costly financial services.
New Payment Options
Blockchain significantly transforms the financial sector regarding international transactions. It removes the barriers typical for traditional financial institutions and creates a borderless transaction system.
Blockchain is internet-based and doesn’t require financial institutions to secure funds transfer. Users can conduct transactions anytime and anywhere with the help of their account’s public and private keys.
Asset digitization and tokenization make trading and transferring assets much easier and faster.
Blockchain introduces new global payment options that save time and money. The technology also gives underserved populations access to financial services.
Improved Regulation and Auditing
Blockchain’s transparent nature provides storage space for new actions without tampering with the old blocks. The system also keeps a non-deletable record of transactions related to your blockchain. The network saves the original transaction document available for viewing at any time.
Additionally, all the data and analysis reports needed for auditing are stored in one place, making the auditing process more convenient. Blockchain’s smart immutable nodes reduce the time and cost of verification and accounting.
Blockchain’s decentralized nature allows all users to access verified data. Audit and regulatory bodies can audit and verify financial activities in real-time. This minimizes the risks of fraud and manipulation.
Blockchain also helps ensure compliance and prevent regulatory breaches. In the case of smart contracts, users can be sure that all the transactions comply with predetermined rules and regulations.
Final Thoughts
Blockchain implementation has removed numerous barriers in the FinTech industry. It has made transactions faster, less costly, and more reliable. The technology also provides traceability and transparency of all operations. Blockchain enhances security and prevents identity theft and fraud.
Although blockchain is a great way to improve existing processes and practices, there are still some challenges that need to be solved before its widespread adoption. FinTech development companies need to work on overcoming scalability and interoperability issues, and regulatory bodies need to create a more sophisticated control system.
