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FinTech App Development – How Blockchain is disrupting the Financial Sector?
- Emorphis Technologies
- Sep 7, 2020
- 5 min read
The ubiquity of FinTech has across the industries from big established giants to small startups; all are seeking to have FinTech app development for their financial services. FinTech is gaining attention for all the valid reasons as financial works that earlier were done with humans, have now become possible to be done digitally.
With technological advancement spreading to almost every industry, the financial industries are no more left behind. Now anyone can manage their finances with just a touch of their smartphones. Moreover, users can deal with their day to day money activities such as trending and investment in the stock market, and much more with great ease.
Innovation happens from such advancement of technologies day by day to boost the financial sector. Among these fast-growing technologies, to stand on the relevant services and maintain a competitive edge in the market is the primary concern for existing or new customers.
FinTech is a disruptive innovation that brings temblor among the old traditional banking services. According to the study of financial services and FinTech, about 77 percent of the financial services industry is planning to adopt blockchain by 2020.
This blog aims to explain to users how Blockchain can disrupt FinTech technology. Before you dive your feet into this, let’s get some basics of blockchain.
Blockchain – In a simple word, Blockchain is defined as a decentralized, distributed ledger that records the genesis of digital assets. Blockchain is the most promising technology because it reduces the risk of any fraud, reduces risk, and brings transparency in a scalable way, and in finance technology, they play a vital role.
5 Ways in which blockchain technology will disrupt the financial industry:
1. Empowering Financial Security
Experts say that fraudulent activity is widespread in the financial sector, particularly in industries where activities are focused on financial transactions in general. Security is a crucial element in these industries. However, both stock exchanges and banks are also confronted with heavy losses due to economic crimes. Owing to their susceptibility to cyber and hack attacks, centralized systems are typically the key reason for these losses. Therefore, a framework is required that gives more protection and can mitigate such attacks.
BCT will give financial industries the protection they need. It runs on a distributed database system that cannot be compromised and thus it is impossible to malfunction. The software automating process serves for the update of the distributed ledgers in real-time. In other words, the program automatically updates the ledger as transactions or other events occur. This system ensures that network members have their own up-to-the-minute copy of the ledger where all transactions are recorded, thereby preventing fraud. Thanks to the automation that blockchain technology provides, efficiency and cost savings are growing for customers of financial institutions (and banks also). Furthermore, the use of a decentralized record keeper often decreases bank costs and makes the operation much more effective.
2. Know your Customer
Knowing your customer is a quite complex procedure for all financial institutes that increases day by day. For example, banks need to perform KYC which is quite time and effort consuming. The process of KYC is done to prevent any kind of fraud activity as well as money laundering.
Thanks to blockchain, all financial institutes will have access to their customer information all around the world and independent verification will be stored for all individuals’ financial institutes, which are being a part of it. Therefore, the process of KYC is now easier since financial institutes have all information in their system that is accessible from anywhere and can be updated in real-time.
3. Make a Smart Contract
A very interesting feature allowing for BCT is that of smart contracts. They are computer codes that help in the general exchange of shares, money, and anything of value. When transactions are done, there is no need for third party involvement. Thus the role of middleman is cut-out and results in saving of time and money. Smart contracts are similar to conventional contracts, but their key difference is that commitments cannot be avoided because they are imposed by the system automatically.
Integrating smart contracts into blockchain technology provides a further layer of automation, authentication, and accountability, and allows all smart blockchain contracts immutable. The combination of smart contracts and Blockchain technology streamlines all the procedures that would usually occur during the execution of a contract because no external intervention is needed for the contract to be executed.
Besides, they will revolutionize financial transactions and change the financial sector’s status quo by creating an infrastructure that provides added protection, transparency, and speed compared to conventional methods. The capabilities of smart contracts in this financial sector have already been found, with some exchanges incorporating it by operating them on blockchain technology to achieve greater automation, especially in situations where constant contextual awareness is needed.
4. Blockchain act as a Security Multiplier
The ability to monitor financial transactions is a function of great value that BCT offers. Since each transaction has a unique fingerprint, it can be easily detected and then tracked amongst all others. This fingerprint can be used as a tool when used by approved government entities to obtuse sensitive information about the transaction and all parties connected to it. This ability would significantly benefit the financial sector, as it can reduce the risk of fraudulent or illegal transactions such as money laundering on the network.
5. Improving Financial Transaction Efficiency
Financial transactions are complex and time-consuming processes for both the financial and consumer industries. Furthermore, a higher probability of mistakes, delays, fraudulent transactions, and low performance are other problems that customers frequently face. Blockchain intends to digitize all financial sector procedures that rely on paperwork. The adoption of Blockchain in the financial sector can result in improving the efficiency of supply-chain finance and reducing manual operating risks. In a financial deal, the key trading parties are the buyer, the seller, and the bank that all exchange contractual details.
When used for financial transactions, smart contracts can be of great benefit. How? They can guarantee that payments are made without manual intervention and following the fulfillment of predefined requirements such as time.
Conclusion –
BCT introduced in supply chain finance can disrupt the financial sector that can lead to a reduction in the cost of banks, as well as the cost of trading finance companies. In addition, transaction efficiency enhancement allows for a smoother overall flow of funding networks. As a result, revenue from the overall trade chain is rising dramatically.
However, the manner in which blockchain drives change in the conventional financial services industry is not straightforward but may occur in both apparent and ambiguous ways. Hence, the future of the financial services industry will rely on how the different players, including banks, leverage this technology and how they communicate.
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