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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? Are you trying to get a hold of two newfound definitions, industries and ideas?

Enter fintech and blockchain.

If you spoke these two words 10-12 years ago, people would most probably give you a puzzled look of ignorance before moving on to the next talk. 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 around $27bn annually by 2030.

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

Before diving into why they are relevant and how they miraculously complement each other, have a little read about their meaning and use in today’s economy. Here areFinTech and Blockchain for you.

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


Financial Technology & Blockchain
Smart Contracts

Smart contracts are what it says on the tin. Agreements that are 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 of blockchain technology. When two parties decide to transact, these automated lines of code come into effect, checking and applying the deal between the two parties.

These contracts are a pure form of decentralized automation, essentially allowing the execution of credible actions without involving third parties such as legal advisors, brokers, and banks. Their purpose and main features 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 structure of the smart contract technology do not allow for changes, 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 optimized and convenient security oversight.
The nature of the technology not only aid the transaction itself, but it creates a digital trace, a record of events with time-stamps in historical order. Transactions are faster, cheaper, and fully audited.

Banking

If you think that blockchain technology will infiltrate the banking system, you’re wrong. Financial Technology & 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 “radical 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 Financial Technology & Blockchain. The advantage of blockchain technology is that you only need to register your identity once. After the information gets recorded and saved in the system, you don’t need to register again for every new service provider you choose to transact.

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

Technology & Blockchain
Stock Exchange & Trading

Trading stocks is a lengthy process with loads of steps involved. Bureaucracy, hassle, and inconvenience as data need to travel back and forth and go through loads of third parties before the end of a trade. The introduction of blockchain technology can reduce 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 only not enough to avoid a crash.

Using blockchain technology for trading purposes can significantly affect the security and safety 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 outcomes.

Blockchain-based trading platforms can also perform as automated regulatory mechanisms and flag criminal activity at its core. The idea is for the same platform used to perform and record the trade will have the ability to recognize 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, effort, money, and resources to perform a background check on your financials. To be able to validate whether they’ll grant you a loan or not.

Having the banks access to one centralized ledger for them to see all your transaction history. Meaning the details of all your payments bills and purchases. Is when the lending decision would be much more comfortable and much faster.

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

The lending process should come 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 allow for trust, belief, and reliance on the algorithm. The data speak a truth you can’t argue, changed, or interpreted in more than one way.


Financial Technology
Peer to Peer Economy

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

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

Tagged as: blockchain