Fintech

Transforming Financial Services – How Can Blockchain Affect the FinTech Industry?

Aleksandra Rajczyk

Blockchain technology might have a transformative impact on the financial industry. It helps generate new revenue, improve end-user experience, reduce risk in business operations and deliver process efficiency. However, blockchain in finance can have both positive and negative impacts.

Blockchain is considered a potential revolution in financial services. For years now, the development of this technology has been one of the core interests of BinarApps thanks to its promising potential. Blockchain has already brought a dramatic change to the technology and now it is likely to serve as the next generation of technology for all financial fields. Blockchain, a form of distributed ledger technology, might be even able to transform well-established financial institutions. 

So, what does it actually mean for the various players in the sectors? What about users? What are the potential opportunities, risks, and challenges of blockchain technology in finance? Keep reading to find out.

Opportunities for blockchain in Fintech projects

Blockchain technology might be very valuable for the FinTech industry. It enables more open and secure business networks and more efficient processes, as well as reduced costs. Digital securities can be issued with shorter periods of time and with a greater level of customization. 

These are the most relevant benefits of Blockchain technology in banking and finance:

  • Security – single points of failure are eliminated. What is more, the need for data intermediaries (like transfer agents) is reduced.
  • Transparency and trust – Blockchain technology employs mutualized protocols and standards. On top of that, Blockchain’s transparent ledger enables all parties in a business network to cooperate and manage data easier than ever.
  • Privacy – data is exceptionally safe – the technology provides users with tools for granular data privacy. Data can be shared selectively within business networks, which improves trust and transparency. You can take the generated data and transmit it securely in real-time. 
  • High performance and scalability – Blockchain networks can sustain hundreds of transactions per second which makes the system super-efficient. The technology supports interoperability between public and private chains. While using Blockchain technology, there is no need for real-time data collection and analysis. The technology performs these operations efficiently and at a lower cost.
  • Programmable capabilities – fields like compliance, system incentives, data privacy, etc. can be built into the assets themselves.
  • Economic benefits – more efficient processes trigger reduced infrastructure and transaction costs.
  • End-to-end tracking of international transactions – thanks to blockchain technology, the liquidity costs can be reduced and user experience – improved.
  • Financial services are more available – using blockchain in finance for customer support results in lower costs and less time required to complete operations.

The benefits mentioned above result in more transparent governance systems, greater liquidity, lower capital costs, reduced risk, etc. 

Risks and challenges for blockchain in Fintech industry

In spite of the positive impact blockchain has on FinTech, there are some negative factors we should take into account. New technology still has some risks and challenges that should be thoroughly considered.

Some of the subjects that should be thought through before launching a digital product based on Blockchain are: 

  • First of all, this technology is still very new. It’s still growing and developing so there are many limitations. One might say, blockchain is still a wild card.
  • Technical limitations – there can be 7 Bitcoin transactions per second (tps) while, e.g., Visa can process 10,000 transactions per second. 
  • Latency – each Bitcoin transaction needs around 10 minutes to be confirmed. Credit card providers are much better in this case – usually, it takes seconds to confirm a transaction.
  • Security issues – the risk of a cyber-attack is higher compared to well-established technologies. Also, the cryptography standard blockchain uses might be crackable, even after many recent updates.
  • Usability – blockchain technology is strongly connected with the full-node-of-all-code API. Unfortunately, it is less user-friendly than the standards (like the commonly used REST APIs).
  • Change in the traditional business model – there is no power in place to oversee the system. As in Blockchain technology, there is no need for intermediaries or for a central authority, participants fully trust the system. In spite of its benefits, there may still be risks. 

Conclusion

Blockchain technology makes it possible to complete transactions with no intervention from any authority, government or bank. Since the very beginning, blockchain has been adopted by more and more companies and institutions in order to make financial processes smoother and easier. It has been working, but in the meantime, some downsides have also revealed themselves. Thus, the need to regulate Blockchain technology has arisen. It’s difficult to tell explicitly if the impact of Blockchain on FinTech is positive or negative. It all depends on many factors in every single case.

If you want to discuss whether the FinTech & blockchain combination is the right choice for your business venture, do not hesitate to reach out to BinarApps. We have worked on blockchain-based projects but even if you decide against it, our innovation consultants will show you other options.

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