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How relevant is blockchain in fintech today? Like never before. 80% of financial firms expect new revenue streams from blockchain, digital assets, and cryptocurrency solutions. Such business activities as lending, deposits, and payments are most affected by technology, which makes them more accessible, secure, and automated. What other blockchain use cases in fintech can you implement, and how can you benefit from them? Get answers to all the essential questions in this article.
Softermii has been creating innovative fintech solutions for more than nine years. And today, we want to share our knowledge and experience to help you understand the blockchain use cases in financial services. You will also see our case studies for Expedipay, SmartStart, and Extobit.
Blockchain Use Cases in the Fintech Industry
Blockchain technology is a global data management system that uses sophisticated cryptography. The actual versions of the registry data are distributed to all devices on the network, which makes them impossible to change. It is a decentralized ledger focusing on security and privacy.
Today, fintech trends include using this technology to manage data more efficiently. Let's look at the blockchain use cases in the fintech market.
1. Identity Verification
Banks and fintech companies must implement “Know Your Customer” (KYC) procedures to prevent fraud and money laundering. But the manual paperwork is too time-consuming, and customers must go through lengthy verification procedures to check balances and make transactions.
Blockchain allows users to verify their identity once and then conduct transactions and other operations from anywhere in the world using a specific document.
Trading still involves daily paperwork, and payments made on weekends take several days to be delivered. The system must ensure all participants have the correct records and can safely make changes.
Trading requires approval, audit trails, and availability for many roles, including financial brokers or advisors. On the blockchain, the information is updated in real time, allowing you to quickly make decisions regarding securities, cryptocurrencies, commodities, or other financial assets.
3. Payments and Remittances
The blockchain network is completely online-based, so it does not need any special configuration. Users get access to data and can conduct transactions anywhere worldwide, simplifying international operations.
The decentralized nature of the blockchain also facilitates P2P transfers, opening up additional opportunities for fintech companies. The payments are safe, as all participants in the transaction must approve them.
4. Lending and Investing
Many businesses cannot access traditional credit and loans to start or expand their businesses. At the same time, small investors are looking for ways to fund without too much risk and effort. The blockchain makes it possible for them to meet.
With the help of blockchain, fintech companies can receive funding from investors and distribute loans to substitutes. Smart contracts regulate the terms and performance of the loan and, if necessary, sell the collateral.
Also, the application of auditing in fintech should not be overlooked. A traditional audit takes a lot of person-hours and may contain errors due to human factors. The main difficulty is to check all the requirements and compliances established by the regulatory authorities and the organization itself.
The blockchain uses a decentralized system that creates new storage areas for each further action. You always have access to the transaction history and all source documents.
Blockchain Market Share and Trends
According to the Mordor Intelligence report, the fintech blockchain market is forecast to grow from $3.17 billion in 2023 to $21.67 billion by 2028. At the same time, the average annual growth rate will be 46.92%.
This rapid growth is caused by the boom of cryptocurrencies and ICOs, increased demand for distributed ledger technology, and the adoption of advanced blockchain solutions in fintech institutions.
As for the future of DeFi, we also expect stablecoins to increase in popularity as they improve liquidity and cost savings. Blockchain will revolutionize the insurance industry, providing greater transparency and efficiency through the Internet of Things (IoT). Other blockchain technology trends include the development of NFTs, blockchain as a service (BaaS), improved cybersecurity, blockchain interoperability, and its combination with artificial intelligence.
Benefits of Blockchain Technology in Fintech
Why has blockchain technology become popular in fintech companies? Let's figure it out.
Blockchain provides process transparency and uses standard protocols, norms, and procedures for all participants. The technology records all transactions and protects them from unauthorized access, establishing a trusting relationship between participants.
Financial institutions, regulators, and customers review transactions and ownership anytime, minimizing disputes and fraud.
2. Lower Costs
The absence of unnecessary intermediaries helps fintech companies reduce costs and improve customer service. The transaction fee is much lower than in traditional institutions involving the seller, the bank, and the credit card network. This difference is incredibly huge when exchanging foreign currency and transnational payments.
3. Automated Operations
Smart contracts automatically trigger actions based on predefined conditions, reducing the need for manual intervention and the associated costs. This helps expedite services such as debt repayment or loan approval, which usually require multiple employees. This way, you can free up experts for other tasks (or reduce staff) and save on expensive infrastructure.
4. Broader Reach
Blockchain solutions can expand access to financial services, as customers can be served 24/7, without exits, anywhere in the world. With the help of this technology, fintech companies can lower entry barriers imposed by strict bank account requirements, complex legislation, and a lack of physical branches.
This will help you become more competitive and enter foreign markets, as well as to reach the population that does not have access to traditional banking services.
Transparency does not replace confidentiality, which is vital for the financial sector. Private and permissioned blockchains are designed to restrict access to sensitive data, providing measures at different levels of the software stack. This means that organizations only share information when needed.
Every financial company must protect data from cyberattacks, fraud, theft, and unauthorized access by employees and make them aware of the necessary rules and measures.
Blockchain technology has contributed to creating secure financial applications that are virtually immune to hacking and data misuse. All transactions are cryptographically linked and kept consistent and unaltered, making it difficult to change or falsify records. The decentralized nature of the blockchain makes the system resistant to cyberattacks, as there is no single point of failure.
Challenges of Using Blockchain in Financial Services
We have already discussed the benefits of blockchain technology in fintech, so it's time to discuss the associated issues.
1. High Implementation Cost
The initial investment in blockchain includes software development resources, technology infrastructure, and dedicated experts. Its integration into existing fintech systems also requires effort and resources and ensures scalability. Blockchain networks must be continuously maintained, updated, and monitored to guarantee proper performance and security.
It is also necessary to find specialists advanced in developing decentralized applications and cryptography, as well as regulatory requirements.
2. Data Modification
The immutability of the blockchain is a fundamental feature of the technology that guarantees its security. However, this can create difficulties for banking, which requires frequent data updates, especially regarding fraudulent or erroneous transactions.
The data entry process and the need to reach a consensus before making changes result in transaction delays. Of course, this affects the user experience and causes inconvenience to customers and financial professionals. Some companies combine blockchain with traditional databases to update them on time.
3. Literacy Requirements
Using blockchain requires skills, knowledge, and computer literacy. Otherwise, employees will not be able to properly record in the system. This can lead to errors in records or misunderstanding of the importance of individual procedures, negatively affecting the technology's effectiveness. As a result, the company may need to hire experts and provide costly training.
4. Duration of the System
Since blockchain transactions are encrypted, it is impossible to predict the duration of the system because there is no guarantee of the record's durability. If the platform or protocol is outdated, accessing and verifying historical transactions will make it difficult. And such information is often needed for auditing, analytics, or new operations that link to previous ones.
Also, do not forget about "orphan blocks", which are not added to the main chain due to consensus conflicts. Such blocks can affect the continuity of data and the sequence of transactions.
5. Blockchain Regulations
The regulatory framework for blockchain is constantly evolving, and following the changes can be challenging. As a rule, this concerns financial regulations, data confidentiality, anti-money laundering, and more. Failure to comply with the rules can result in fines, reputational damage, and lawsuits.
It is essential to consider that there are no standardized rules, and you must focus on local, regional, and international ones. This requires a high level of technical and legal knowledge.
Softermii as Your Fintech App Development Partner
Softermii is a reliable fintech app development partner. We create progressive solutions for various companies, including fintech startups, trading platforms, hedge funds, wealth managers, and SaaS providers.
Do you want to connect digital investments, algorithmic trading, or risk and equity management to your platform? We have more than nine years of expertise in this area. Also, we will help you with online payments, client messengers, video and audio chats, P2P money transfers, and customer analytics.
Let's consider our expertise using the following cases in the fintech industry.
Expedipay is a mobile banking solution with a handy interface and modern functionality. This includes P2P transfer per click, integration with third-party ATM vendors for deposit-withdrawal services, and adding a card to a mobile wallet. Also, customers can contact the support team. Security is provided by KYC/AML services.
During the first three months, the app was downloaded 13,000+ times, resulting in 1,350,000+ money transfers. On average, the client made 4.1 orders per day.
SmartStart is a platform for managing personal funds, integrating with popular US banks and payment processing systems such as Paypal and Stripe.
The platform was divided into three components: spending monitoring and market analysis, asset and property management, and loan opportunities. It has an AI/ML-powered algorithmic credit rating system based on the history of bank accounts, spending, and assets.
During the first two months, 24,000 users joined an app, 1,296,000 transactions were tracked, and 3,000 properties were connected.
Extobit is an accessible cryptocurrency exchange. The system combines exchange rates, market trends, statistics, and safe trading. It was important to make an intuitive interface to help beginners get started quickly and offer advanced analytics for traders. We reduced the duration of the exchange operation to 2 minutes.
In the first month after the release, 20,000 users joined the platform and made more than 84,000 exchanges. It took only four months for Extobit to achieve break-even.
Blockchain platforms are the future of the fintech market, reducing costs, automating processes, increasing transaction security, and providing broad service coverage. You can use the technology for user identification, payments, lending, investments, trading, and auditing.
Of course, implementing the blockchain is associated with some challenges, but they can be minimized with the help of a reliable software vendor. The Softermii team has extensive experience in developing innovative financial solutions, as well as a large portfolio of successful projects.
Contact us to experience all the benefits of blockchain technology for your company.
Frequently Asked Questions
What is blockchain in fintech?
Fintech blockchain uses a decentralized and transparent digital ledger to securely record and manage transactions. The technology is widely used in payments, identity verification, commerce, lending, and other financial services.
How does blockchain technology contribute to the overall efficiency and scalability of financial processes?
The use of blockchain in fintech allows businesses to securely record and execute transactions in real time, minimizing the need for intermediaries. Companies can automate time-consuming workflows, reducing manual intervention and costs.
What are the long-term implications of blockchain adoption for the fintech market?
Long-term implications of blockchain adoption are increased operational efficiency, reduced costs, enhanced privacy and security, and cross-border payments. Customers will receive better and more affordable services, and companies will be able to provide round-the-clock processes seven days a week.
What are the challenges of implementing blockchain in the fintech market?
When implementing blockchain in fintech, it is important to consider regulatory compliance, scaling issues, and large investments in technology development, implementation, and maintenance. The necessity to improve the technical literacy of your employees is also the challenge of blockchain in fintech.
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