Financial technology, also known as Fintech, is one of the most exciting and booming areas in the global business world. The financial services should make use of technology to grow at speed and scale up with the present payment requirements. While the definition seems simple, the products, services, and companies that develop digital technologies in the financial sector work really hard to meet the industry’s needs.
Blockchain and Fintech are two emerging technologies that help payment development companies to develop payment tools for payment processing companies. As predicted by the World Economic Forum, by 2025, almost 10 percent of the global GDP will use blockchain or blockchain-related technology. With plenty of transactions stored and documented in this way, hackers can experiment with blockchain technology to break its security.
Both Fintech and Blockchain are changing the payment space and have greatly impacted the way we do business, receive payments from customers, and imagine the future of finance.
What is FinTech?
FinTech stands for financial technology and economic industry that comprise companies that use technology to make the financial service more effective and efficient. The technology is applied to the segment of technology that is disrupting industries like financing, lending, retail banking, payments, wealth management, markets, and exchanges.
It relates to new applications, processes, products, or business models in the financial services industry. However, the term FinTech is increasingly being used to refer to broader technology applications in space: front-end consumer products, new competitors competing with existing players, and even new paradigms like Bitcoin. The financial services sector is one of the last frontiers that new technologies have yet to overcome. Fintech companies are trying to eliminate established financial systems and challenge traditional companies that rely less on software.
What is Blockchain Technology?
Blockchain is essentially an integrated network of individual, unchanging sets of information known as “blocks.” A “chain” describes a publicly accessible network through which the data contained in blocks can be used. Basically, the blockchain records the basic details of the transaction, such as the currency and value of the exchange, the date and time of the transaction, and who participated in the exchange.
In addition, each block is given a unique identification code, which means that although transaction details may appear similar in some cases (repeated orders over a month or similar orders in quick succession), each element still exists to be identified.
Blockchain enables more open, inclusive, and secure business networks, common operating models, more efficient processes, reduced costs, and new banking and financial products and services. It allows the issuance of digital bonds at shorter terms with lower unit costs and better customization. Therefore, digital financial instruments can be tailored to the needs of investors, expanding the market for investors, reducing costs for issuers, and reducing counterparty risk.
Now, as we have an idea of Fintech and Blockchain technology, let us know how it can become the future of digital payments.
Reduced costs and transactions in minutes
Transferring funds or assets has always been a slow process in traditional banking. Sometimes it can take years to send as little as $100 while two banks go through all the protocols necessary to complete the transaction.
With the blockchain implemented in fintech applications, sending money is much faster regardless of the amount, which can be done in minutes. Blockchain-based transactions happen in real-time, so the recipient doesn’t have to wait days or weeks for the money.
Secure Payments and Transactions
A blockchain is decentralized; it means that no one can control the chain or alter it in any way. It makes use of distributed ledger technology where every block and transaction is recorded through a node that can be a computer, smartphone, or server. There is nothing that links these nodes.
Its distributed architecture eliminates multiple points of failure and reduces the requirement of intermediaries. Blockchain technology also enables the implementation of secure application code that is tamper-proof against fraud and malicious third parties, making it virtually impossible to hack or tamper with.
Secure Digital Identity Management and Smart Contracts
Fintech and the blockchain allow users to determine how they identify themselves and who they want to share their identity with. Assuming blockchain companies ensure that the registration process is secure and solid, end users never have to worry about who the person on the other side of the transaction is.
The Blockchain at Fintech allows customers to use a fingerprint that, as a real fingerprint, can be used as a unique identifier. It can be stored in a distributed ledger and referenced by any bank on the network.
Remove third parties from transactions.
The improved security of the blockchain offers several advantages. One of them is that you can avoid traditional fraud prevention methods that require multiple parties to validate transactions.
Every financial transaction requires an authority to validate, be it Visa or American Express that handles your card payment or the many people who work as transaction reviewers at investment banks.
A global network without geographic restrictions
As the blockchain is internet-based, it does not require any special equipment to operate. With decentralized systems, blockchain-enabled fintech companies can convert global transactions into fast, common protocols with just one requirement: Internet access.
Another thing you need to know is that the blockchain exists everywhere and allows for the transfer of person-to-person (P2P) payments across the world. People can access their data and manage funds from anywhere, and all a user needs to perform a transaction is a private key. It would be an unprecedented update on how finances are managed now.
With hundreds of uses and potential benefits of Fintech and Blockchain can solve many challenges of digital payments. As companies developing financial technologies realize the importance of blockchain, it is important to do more research and understand their application in specific situations to check the results and future potential. Blockchain in the fintech industry has the potential to offer us a more effective and seamless alternative to banking. The benefits will always include swift transactions, high security, and transparency in financial tracking.