Top Five Use Cases for Financial Industry
Financial technologies, also known as Fintech, have been reshaping the financial industry for quite a long time, driving banking processes towards enhanced efficiency, transparency, and security. Nowadays we take for granted international transactions, internet banking, peer-to-peer payments, etc, however, all these operations seem ordinary due to the huge breakthrough made by Fintech over the last decades.
Today, one of the most hyped terms in financial innovations is blockchain, which may become the next stage in Fintech evolution. In this article, we will look into the role of blockchain in the Fintech market and its most common use cases.
Why Fintech Needs Blockchain?
The biggest challenge the Fintech sphere has always been facing is how to gain customer trust and provide them with highly efficient and secure services. Here comes blockchain. Being an immutable distributed ledger technology (DLT) with decentralized nature, blockchain ensures a high level of data protection, enhanced and simplified verification process, improved data quality, faster transactions with no middlemen, and reduced risk of human errors. This way, a growing number of fintech companies are opting for blockchain development services to stay competitive and provide their customers with a seamless banking experience and a new level of freedom, democracy, and transparency in managing their finances. According to statistics, the market size of blockchain solutions in finance is expected to reach around $22.5 billion by 2026.
There is a large number of Blockchain applications in many banking areas, however, let’s consider the major ones.
1. Digital Identity
Since security has always been the top priority for every banking organization, there are many different ways to validate user identity. However, all of them are usually time-consuming and troublesome as every operation needs its own verification.
Blockchain, in contrast, allows customers to create a digital identity and determine who they want to share it with. Once a digital persona is created, customers can reuse it for other providers connected to the blockchain. Not only does this approach save customer time and effort when performing bank-related activities, but also enhances transaction security since blockchain has proved to be a much safer way to store information.
Although digital identity hasn’t gained wide adoption yet, its market is expected to reach $12.8 billion by 2024.
An appealing feature that fosters blockchain popularity in the trading sphere is smart contracts. Unlike traditional contracts which require paper agreements, smart contract’s terms are written in the lines of code that are stored on the decentralized and distributed blockchain network. The greatest benefit they bring is the absence of intermediaries, which makes trading more streamlined, time-efficient, and accurate. Moreover, they provide enhanced transparency of trading operations due to the decentralized verification of contract terms, this way also improving liability between contracting parties. Due to the immutable feature of blockchain, smart contracts improve the robustness of trading systems. They can guarantee that contracting information will not be altered or manipulated as it’s impossible to change the data on the already secured “block”.
3. Payments Across the World
Blockchain significantly facilitates global payment services. International payments empowered by this technology can boast of unprecedented speed and efficiency due to the real-time verification of transactions and the absence of middlemen. Moreover, since no third-party authorization is required, the payment processing fees are also lower, 2-3% compared to 10-15% for traditional transactions. Apart from increased speed and reduced transaction costs, blockchain ensures the high security of payments. The transaction can be processed only if every participant approves it. Moreover, ledger copies keep all the transaction information, eliminating any data loss.
4. Audit and Accounting
Audit and accounting follow strict regulations regarding data validity and integrity, thus, it usually takes much time for them to adopt innovations. However, blockchain can help digitize these areas, making them more time- and cost-efficient. Blockchain technology in audit and accounting can be used to:
- add all the records to the ledger instead of keeping them separately based on transaction receipts;
- automatically verify vital data behind financial statements;
- automatically pay invoices due to the smart contracts;
- validate the integrity of the files, for example, by creating a digital fingerprint and comparing it with the one stored in the blockchain, etc.
5. Investing and Fundraising
Investing and fundraising are challenging processes that usually involve tiresome negotiations, long meetings, etc. However, with the introduction of tokenization, it has become much easier. Tokenization lets companies generate investments through Equity Token Offering (ETO), Initial Exchange Offering (IEO), Initial Public Offering (IPO), Security Token Offering (STO), and Initial Coin Offering (ICO). All of these solutions have their merits and drawbacks, however, thanks to them all even small startups can raise funds by selling digital tokens on a much broader market.
Blockchain can also be of great help in hedge fundraising. Investment managers can use a distributed ledger to enhance the process of managing ownership of complex assets, making it more accurate and less time-consuming. Moreover, this way, they don’t need to spend much time and effort preparing performance reports. When it comes to investors, they can manage their investment allocations and holdings any time they want.
Although blockchain is a modern buzzword, it hasn’t achieved widespread adoption yet. Being a new technology it certainly comes with some radical transformations that the financial industry has to accept. However, due to its key features such as transparency, accuracy, time-efficiency, and security, in the upcoming years use cases of blockchain technology will become more diverse.
Thus, when building a fintech solution it’s reasonable to consider fintech software development powered by blockchain. Not only will it help you build robust and secure digital fintech products, but also let you be among pioneers, reaping the benefits of this technology.