Innovation: Blockchain Disruption in Fintech
The banking industry as we have known it for many years is undergoing a dramatic transformation, fueled by new technologies. The most significant is blockchain, which is expected to fundamentally change the way financial transactions are conducted today. This technology is expected to have a significant impact on how traditional banks do business in the future, enabling new business models, delivering new value propositions, and addressing long-standing challenges while providing much-needed security and trust in transactions involving numerous parties and diversity of data.
What exactly is Blockchain?
Blockchain technology is best known as the engine that enabled the exchange of cryptocurrencies. The rise in popularity of cryptocurrencies such as Bitcoin and Ethereum has also heightened interest in blockchain as a powerful and secure network that could be used by a range of industries to interrupt their traditional methods of operation.
Although Blockchain has received the attention it deserves, a number of projects in the banking industry are still in their early stages, with solutions having only reached the phase of POCs (proof of concept) or MVPs (minimum viable products).
Blockchain technology provides a way for people to come to an agreement on the state of a database, without using a middleman. It does this by providing a ledger that nobody administers. This makes blockchain useful for specific financial services – like payments or securitization – which banks are currently in charge of.
Blockchain, unlike databases and other financial systems, is a completely digital database. Each transaction is saved on a distributed, immutable ledger that spans a network of computers. Blockchain can record transactions between two parties faster and more securely than a typical database because it uses cryptography to safeguard transactions and, most crucially, to offer a tamperproof accounting of all transactions.
Blockchain can transform the financial services business by enabling two-sided transparency, in addition to transaction speed, security, and confidentiality.
So how is Fintech services affected by Blockchain?
Banking systems are continually changing and adapting to current developments, as well as responding to consumer demands.
The convenience of both receiving and making payments is a major area of the banking business that could be impacted by blockchain-powered cryptocurrencies. The path is made for faster transactions with potentially reduced costs by basically removing the middle man required by traditional banking institutions to approve transactions.
The banking and finance industries may be revolutionised by blockchain. It has the potential to transform the financial industry significantly few reasons include:
- Transactions are completed faster and at a reduced cost.
- In the transaction authorisation procedure, there are no middlemen.
- Decentralization and, as a result, independence from central repositories are both desirable outcomes.
- Paperwork and bureaucracy will be reduced.
- Data consistency
The fact that blockchain technology has yet to make any significant visible improvements to mainstream financial systems and that the transactional throughput of DLTs (Distributed Ledger Technology) is substantially lower than that of centralised systems backs up their claims.
Despite the fact that several banks have tested and used blockchain technology for cross-border remittances, trade financing, and faster settlement processes, no fundamental modifications to the core banking process have been made to date.
Aside from its use in cryptocurrencies, blockchain might have a significant impact on the clearing and settlement of bank payments. However, in order to comprehend how this could occur, we must first get a rudimentary understanding of how the system currently operates. Blockchain’s shared public ledger system, speed of service, and security is given by the fact that it’s distributed across thousands of computers, as well as its very complex encryption techniques and transparent nature, could help to modernise rather than disrupt the banking industry.