Blockchain in Fintech – Key Trends & Use Cases for 2024

Top 6 Benefits of the Blockchain in Financial Services

In the Fintech industry, blockchain offers a number of advantages. Most banks have a stack of legacy systems that are thirty to forty years old, some of which are still in use.

Therefore, it should come as no surprise that the financial services sector has embraced blockchain to upgrade many of their antiquated systems and, along the way, save a significant amount of money. Banks may trade more quickly, for less money, and with greater efficiency using a distributed ledger technology. Several advantages include:

• Restorability

Because a DeFi network is distributed among several nodes, it can recover from events like database corruption, server wipes, or ransomware assaults. This capability can be used by businesses to restore their blockchain network and guarantee data integrity.

• Fewer Fees

Blockchain enables Fintech companies to lower the expenses connected with their services by getting rid of pointless intermediaries. While transaction costs (such as gas fees) may still exist, they are typically less than in conventional financial systems. Blockchain has the ability to save additional costs for remittance by up to 80%.

• Process Automation

Fintech firms use self-executing smart contracts to automate a range of activities, including loan approvals and yield payments. Scalable operations that would traditionally require many personnel are now possible because of automation. Additionally, blockchain reduces the need for third intermediaries, thus further streamlining and simplifying transactions.

• Quick Settlement Time

According to Deloitte’s 2022 DeFi research, DeFi applications and blockchain technology dramatically cut down on settlement waiting times. Transactions that used to take more than three business days to clear can now do so instantly.

• Increased Reach

Fintech blockchain companies are able to become more competitive because of the lower service costs and affordable cross-border payments they facilitate. These businesses can also lessen the entry hurdles put in place by conventional financial institutions, such as complex legislation and strict bank account requirements. Now they are easily able to access customers in international markets.

• Data Uniformity

Consensus protocols and smart contracts guarantee that all nodes and transactions inside the blockchain network abide by the same set of rules, ensuring data homogeneity. This assures the consistency and immutability of transactional data.

Top 5 Use Cases of Blockchain in Fintech Industry

1Digital Identity

Security is one of the most crucial elements of Internet Banking. Needless to say, the security and validity of the transactions that banks conduct must be guaranteed. Now the majority of banks utilize their own security algorithms for user identification verification. However, clients frequently find them to be a major inconvenience because they must go through numerous security checks in order to perform simple things like checking their balance or transaction history, etc.

As a result, customers are occasionally annoyed by banks’ use of KYC (Know Your Customers) tools. It can be complex, time-consuming, and annoying to go through various security measures if you have accounts with many banks.

One can utilize blockchain technology to combat this. Instead of relying on the digital persona created by banks, you can construct your own with it. Additionally, you can save time and effort by reusing your persona for identification at other institutions and venues. On top of that, one can modify their avatar, enabling them to make a unique and accurate digital identity.

At the institutional level, this technique can hasten identification and validation. Clients can transfer money, discuss information, and carry out numerous other bank-related tasks like loans, claims, and drafting using their digital avatars. Additionally, Fintech companies prefer the data kept on blockchain networks for software requirements because it is considerably safer than data saved in traditional volumes.

2Trading

The majority of trading companies still demand a ton of paperwork. Additionally, payments and transfers are delayed if you trade on the weekend. Hence, there is a need to set up a system where all participants can quickly review and verify the trade because vendors all over the world use trading platforms. The trading system should make sure that everyone has accurate entries and that users can make adjustments in a secure manner whenever they wish to do so.

Blockchain is specifically made to deal with this scenario. The process as a whole can be improved drastically just by employing a generalized ledger. Additionally, as information is updated in real-time, it flows quickly, making it simple to make business decisions and policies on them. Moreover, by lowering the danger of shorting and enhancing accountability, such a system also enhances the trade’s entire lifetime.

3Investment & Lending

The majority of investment bankers want credit and financial information before making any investment. They must confirm that their funds are being handled properly. It is quite simple to validate accounts and keep track of investments using cryptocurrencies.

There are several ways that businesses can use blockchain to attract financing, even without the help of investment firms. Nowadays, the general people can invest in Bitcoin and blockchain companies as well as big corporations. There are numerous additional choices, including STOs (secure token offerings) and IEOs (initial exchange offerings). Even though they are simple investing possibilities, they still demand due diligence.

These options must, of course, adhere to governmental regulations and be validated by banks using securities processes. However, by using them, firms can attract funding from a variety of investors and receive counsel from international strategists as opposed to relying solely on one hedge fund manager. Isn’t that great?

4Auditing

Verifying the accounts and identifying any discrepancies is done through auditing. This is a labor-intensive process that takes a long time for the majority of banking websites since it involves checking for compliance with organizational and governmental standards. Data integrity is the main consideration in auditing for the majority of organizations.

Blockchain just simplifies this auditing. Through it, you can enter records directly into the ledger, making it possible to store and update data more effectively. Also, as the ledger is absolute and genuine, businesses have unmatched documentation of fund transfers in real-time. Additionally, it enables them to have better records. On top of that, the general ledger can also be used for auditing instead of collecting data from several sources.

Blockchain can be used to validate unrecorded transactions as well. Smart contracts and automated invoicing solutions will allow your company to bill customers without the need for manual intervention. Additionally, as blockchain is immutable, the accuracy and transparency of records are undeniable.

5Global Payments

You can make payments and transfers without going through banks. Well, this all is made possible because of blockchain’s support for decentralized money. Now as money transfers between accounts are cheaper, it can also make payments quicker and simpler. The cost of processing payments is also lower because blockchain transfers don’t need third-party authorization and don’t require banks to use resources.

Blockchain will contribute to a better global money exchange. As a remittance fee, banks typically take 10 to 15 percent of the transmitted money. This drops to 3% when using blockchain.

Blockchain payments are also safer as everyone involved in a blockchain transaction must provide their consent for the transaction to proceed, and anybody can review the updated ledger after the transaction, 

Additionally, P2P transfer can be used to transfer payments since a third party is not necessary. By doing this, banks are able to compete with Fintech firms and offer their own services.

Also Read: A Step-by-Step Business’s Guide to Build Secure Private Blockchain

Top 5 Key Trends of Blockchain in Fintech

Needless to say, the Fintech sector has undergone a number of changes, due to recent technological disruptors like artificial intelligence (AI), cloud computing, and blockchain. If we particularly talk about the blockchain in the Fintech market, it is causing a significant amount of upheaval. Let’s go through some of the key trends that the Fintech industry is going to experience in the future because of blockchain technology.

• Blockchain Identity Management

The digital identity of a person is a combination of distinctive qualities, traits, and credentials. These features allow for the inclusion of name, address, date of birth, or other demographic data used to enter digital platforms and conduct online transactions.

How much personal information we share every day on digital sites is difficult to determine. It includes our digital footprint, demographic information, numerous documents that are frequently exchanged online, and various combinations of usernames and passwords. 

The main concerns of traditional digital identity management (identity theft, widespread data leaks, loss of control, online platform attacks, and abuse of personal data) are addressed effectively by blockchain. As we share our documents more frequently, it is necessary for the data exchange to be more open, secure, and “user control”-friendly. Identity management on the blockchain addresses these problems more accurately.

Blockchain technology’s decentralized structure eliminates the need for a third party to store personal information and enables extremely secure independent identity management and verification. 

Users have full control over their data and can grant or remove access to their identification information at any moment. User privacy, high security, and seamless data transmission are essential for blockchain-powered identity management, and this is what it offers.

• Financial Supply Chain

Emerging technology-enabled supply chains, particularly financial ones, will become much more transparent and efficient, thus enabling more easily available funding and payment procedures.

Whether used by huge corporations or small and medium-sized businesses (SMEs), blockchain can make the whole financial supply chain transparent to anybody with access, eliminate blind spots, increase control over expenses, improve data management, and significantly lower the likelihood of fraud and mistakes. 

A wonderful example of a private or consortium blockchain is the financial supply chain. The chain is still kept private from unauthorized users even though everyone involved in the association (including third parties) has access to the data within the association.

• Decentralized Finance (DeFi)

Decentralized Finance (DeFi) builds on open blockchain networks like Ethereum and aims to be more accessible, open, and transparent than the traditional one.

Instead of DeFi, traditional institutions such as peer-to-peer lending, borrowing, trading, and investing can offer access to financial products and services.

Smart contracts, which are self-executing contracts with the terms of the agreement written directly into code and govern the system’s regulations, are the foundation of DeFi solutions. 

The concept of smart contracts embraces the lack of trust. These contracts enable users to communicate with the DeFi ecosystem directly because they are open, safe, and accessible to anybody with an internet connection.

Some of the renowned DeFi applications are Decentralized Exchanges (DEXs), Stablecoins, Yield Farming Protocols, and Lending Platforms.

DeFi has the ability to change the banking sector even more by

• Improving financial inclusion
• Cost-cutting for financial services
• Making financial transactions more efficient and transparent

Also Read: The Future of DApp Development: Trends and Predictions

• PayTech

PayTech is a single word for everything that relates to completing digital transactions more quickly, including digital wallets, biometric authentication, mobile, contactless, and blockchain-based payments, as well as QR code payments and others.

Small-value transactions (micropayments), B2B, B2B2C, and B2B2B payments, as well as peer-to-peer transactions, have all improved in safety, speed, cost, and efficiency. 

Unquestionably, one of the most important Fintech breakthroughs is PayTech. Since its inception, it has fueled industry expansion and changed how we handle our money. According to EY (2022), it now accounts for 25% of all Fintechs globally.

• Transparency

Know Your Customer (KYC) is crucial to Fintech along with its regulations. It enables financial institutions and Fintech businesses to confirm the legitimacy of their clients before offering them financial services.

Fintech organizations are a target for fraudulent operations like money laundering, identity theft, and financing illegal activities since they frequently deal with sensitive financial and transaction data. KYC is a component of the laws that help stop these things from happening in Fintech.

In the Fintech industry, data on customers, such as their demographics and official identification, is gathered and verified as part of KYC. To ensure that a customer is not connected to unlawful activity, the ID information is cross-checked with numerous government and regulatory databases.

By protecting the security of their personal and financial information, KYC promotes client trust, which is essential for any Fintech company to succeed by retaining trust.

How Blocktunix Can Help You Maximize Your Potential?

Blocktunix is a reputed blockchain development company that provides user-friendly, secure, scalable, and financial regulations-compliant Fintech blockchain apps to give comprehensive traceability across the financial lifecycle. What makes us unique is that we have certified blockchain experts with an in-depth understanding of both Fintech and Blockchain technologies to simplify financial processes through apps that significantly enhance business value.

Our team of blockchain engineers excels in developing financial applications, including those designed for crowdfunding, microfinancing, micropayments, exchanges, wallets, payment reconciliation, and more.