Financial Technology & Blockchain: A Match Made in Heaven

Do you know what’s more interesting than trying to get a grip of a newfound definition, industry and concept? Trying to get a grip of two newfound definitions, industries and concepts.

Enter fintech and blockchain.

If you uttered these two words 10-12 years ago, people would most probably give you a puzzled look of ignorance before moving on to the next conversation. In 2019 though, these two ideas not only do they hold meaning, popularity and public interest, they are somewhat of a big deal for what the future of the financial services industry holds.

According to Juniper Research, blockchain technology is forecasted to save banks and financial institutions more than $27bn annually by 2030.

We’re getting ahead of ourselves though. Let’s take a step back.

Before diving into why they are important and how they miraculously complement each other, have a small read about their meaning and application in today’s economy. Here is FinTech and Blockchain for you.

Are you back? Is it clearer what FinTech and Blockchain represent? Perfect! Now, let’s see how they fit together.


FinTech and Blockchain are two newly formed worlds but it seems like they’re made to mesh and aid each other. This blog post investigates their complementary nature and how they can elevate each other.
Smart Contracts

Smart contracts are exactly what it says on the tin. Contracts that using the power of technology, perform otherwise lengthy and painstaking tasks in a faster, more efficient manner. The concept of smart contracts is one of the main pillars in blockchain technology. When two parties decide to transact, these automated lines of code come into effect, verifying and applying the agreement between the two parties.

These contracts are a pure form of decentralised automation, essentially allowing the execution of credible transactions without involving third parties such as legal advisors, brokers and banks. Their application and main characteristics make them one of the most exciting prospects for global fintech and the entire financial services sector.

By eliminating third parties and intermediaries, the entire transaction process bears no costs and immediately becomes faster.

Additionally, the rigid infrastructure and architecture of the smart contract technology does not allow for modifications, removing the threat of cheating or hacking the system.

International Payments

Blockchain’s Distributed Ledger Technology (DLT) allows for real-time, cross-border payments with an optimized and convenient security oversight. The nature of the technology does not only aid the transaction itself, but it creates a digital footprint, a record of transactions with time-stamps in chronological order. Transactions are faster, cheaper and fully audited.

Banking

If you think that blockchain technology will infiltrate the banking system you’re wrong. Blockchain technology has already penetrated the banking system in volume and ways you wouldn’t believe.

Let’s just say that The Harvard Business Review encapsulated the relationship between the two in a very effective manner: “The Blockchain will do to the financial system what the internet did to media.” As the esteemed publication very candidly addresses, many people wrongly believe that the blockchain network and fintech will only change the delivery of big data. The real value and effect of this combination though, will be the “fundamental restructuring of a core part of the economy”.

Look no further as these changes and structures are shifting in front of our very eyes.

2017 saw 26 publicly listed Chinese banks deploying blockchain applications ranging from the issue of invoices and cross-border loans to ID authentication processes.

As SecureKey stated on May 1st 2019, 5 Canadian banks now let customers digitally verify their identities in a “privacy-enhanced and secure way” using blockchain technology. The advantage of blockchain technology is that you only need to register your identity once. After the information has been recorded and saved in the system, you don’t need to register again for every new service provider you choose to transact with.

70% of 722 corporate correspondents, who took part in a 2016 Thomson Reuters survey, claimed that client on-boarding can take up to 2 months while 10% stated that it can last up to 4 months. Blockchain technology is not owned by a central repository and there is no conflict of interest between banks. If one person uploads their personal information on the system, information can be shared internally by another branch of the same bank or even by another bank that just uses the blockchain system.

FinTech and Blockchain are two newly formed worlds but it seems like they’re made to mesh and aid each other. This blog post investigates their complementary nature and how they can elevate each other.
Stock Exchange & Trading

Trading stocks is a lengthy process with loads of steps involved. Bureaucracy, hassle and inconvenience as information need to travel back and forth and go through loads of third parties before the completion of a trade. The introduction of blockchain technology can eliminate these extra steps, simplify the process and instantly make it faster and more convenient.

The advantages of blockchain technology do not stop there. The shortcomings of security and regulation have been tantalizing stock markets since the beginning of time. The Great Depression, “Black Monday” of 1987 and so many other examples showing that whatever levels of regulation exist are simply not enough to avoid a crash.

Using blockchain technology for trading purposes can significantly affect the security and reliability of the entire system. The blockchain framework allows users to access ledgers remotely but also gives regulators insight and oversight over the transaction process. Additionally, investors can perform real-time compliance and KYC checks, avoiding unwanted legal consequences.

Blockchain-based trading platforms can be used as automated regulatory mechanisms and flag criminal activity at its core. The idea is that the same platform used to perform and record the trade will have the ability to recognise suspicious moves and patterns and warn the users before things can escalate.

Lending

Let’s make this very, very simple. Banks are reluctant to give loans because they do not trust you’ll be able to pay it back. They spend time and effort and money and resources to perform a background check on your financials in order to be able to validate whether they’ll grant you a loan or not.

If banks had access to one centralised ledger where they could see all your transaction history, details of your payments bills and purchases, the lending decision would be much easier and much faster.

Oh, wait! That sounds a lot like something blockchain technology could do for lending.

The lending process could be codified and automated, seamlessly incorporating the actual issuing of the loan as well as granting access for auditors and regulators. Not to mention that there would be no concerns over the secure transmission and storage of sensitive data. Blockchain technology possesses this a strange combination of transparency and privacy as lenders and borrowers are not publicly named.

In a world where lending and borrowing happens on the blockchain, the rock-solid technology and framework allows for trust, belief and reliance on the algorithm. The data speak a truth that can’t be argued, changed or interpreted in more than one way.


Peer to Peer Economy

Just have a look at slock.it, Friendsurance or Power Ledger. Three different industries, three different companies, all sharing one common trait. Utilizing the power of blockchain technology and the peer to peer network to push the boundaries of what’s possible.

The P2P economy has been around for some time but the introduction of blockchain technology seems to be reconfigurating its make-up and inner workings.

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