Blockchain in Fintech: Advantages of Implementing This Breakthrough Technologies

Blockchain may be the most discussed technology of recent years. A source of income for some and a mystery for others - at first glance, blockchain may seem too abstract to be useful for everyone. In the near future, blockchain could become the engine of economic development. Entire systems, from government to healthcare, from logistics to banking, are being built using the power of this technology. In this article, we will look at blockchain's place in the fintech industry and its benefits to businesses.

Fintech blockchain market overview

You can be as skeptical as you want about crypto-assets as an investment tool, but ignoring the opportunities and benefits of blockchain technology is like shooting yourself in the foot. Analysts predict that the global blockchain market will grow 143 times by 2030 with a total value of $1.5 trillion. Major financial services, including Visa, Mastercard, and PayPal, are beginning to use crypto-assets and allow cryptopayments. The blockchain system was the basis for creating the idea of a new integration of Web 3.0.

Japan's largest bank, Mitsubishi UFJ Financial Group (MUFG), plans to provide financial services via Metaworld as early as 2023. And Poland's most famous bank, PKO Bank Polski, has announced the opening of its first bank branch in the Metaworld.

Thanks to blockchain, peer-to-peer transactions can be made without financial intermediaries such as banks. However, this does not take banks out of the trend. J.P. Morgan announced the use of blockchain technology in its new Confirm solution, designed to reduce the cost of payments between banking institutions worldwide.

So blockchain continues to be an integral part of the development of the fintech market. According to Markets and Markets, the size of the blockchain fintech market is expected to grow from $230.0 million in 2017 to $6,228.2 million by 2023.

Blockchain in fintech: Predictions for 2024

According to Meticulous Research, the fintech blockchain technology market is projected to exceed $36.04 billion by 2028, showcasing a remarkable compound annual growth rate of 59.9% from 2021 to 2028. This trend will be a major focal point in 2024, indicating substantial growth and significance in the coming years.

Increased adoption of stablecoins

Stablecoins, a form of cryptocurrency linked to stable assets, are gaining popularity as payment options among companies like CheapAir, ExpressVPN, Twitch, and Travala.com. Donohoe notes their transition from trading tools to simpler fiat currency conversions by fintech firms, is leading to wider adoption. Now, major players such as Western Union and MoneyGram are using stablecoins for faster cross-border transfers.

Regulation around DeFi

Decentralized finance (DeFi) integrates blockchain to manage financial transactions without banks, exchanges or brokerages.The UK government is supportive of the development of DeFi, and the FCA has recognised its potential benefits — such as increased financial inclusion and innovation.

More regulation as the Brexit grace period ends

In 2024, companies under the Temporary Permissions Regime in the UK must obtain full FCA authorization as the grace period for FCA EU licenses ends, leading to a greater emphasis on regulatory compliance overall.

Fintech Blockchain: what is it?

Fintech is a term to describe projects where there are two components: financial and technological. The financial part means that the business model of the project is focused on financial services. Financial services, in turn, have seven main areas: payments, deposits and crediting, brokerage and trading, raising capital, asset and investment management, hedging, and insurance.

The technological part, on the other hand, means that the project has three main branches:

• Simplification of obtaining financial services;
• Transformation of processes and business model;
• Optimization of the cost structure.

In turn, a blockchain is a distributed database that contains information about all transactions carried out by system participants. The information is stored as a chain of blocks. Each block contains a certain number of transactions.

According to many people, blockchain has significantly impacted the fintech sector, especially through such developments as asset tokenization and the introduction of digital currencies. Data security and the use of smart contracts are important applications as well.

Does blockchain have all the makings to be a game changer in the established monetary system? Definitely yes. P2P will eliminate the need for third-party processing of transactions, significantly reducing transmission times and providing increased transparency of financial transactions.

Benefits of blockchain in fintech

First of all, blockchain in fintech is associated with the crypto industry, where it has become the technological basis for issuing cryptocurrencies. However, blockchain in fintech is much bigger than the crypto industry. Particularly in the fintech industry, the use of blockchain has the following advantages:

Transparency

All blockchain data is publicly available, meaning anyone can trace the chain of transactions from the beginning of the network's existence.

Reliability

Data is stored on multiple users' computers. This reduces the risks of hacking and computer crashes. Even if dozens of computers fail at once, no information is compromised.

Security

The system adds blocks in chronological order and links them by a common hash. Therefore they form an unbreakable chain whose links cannot be deleted or changed.

Minimal commissions

Instead of centralized intermediaries such as banks, miners log the transactions. Usually, there are a lot of miners and the competition between them is very high. This keeps the commissions low.

UI/UX Design

Independence

In the blockchain, transactions go through without intermediaries. That is, companies, banks, and governments cannot interfere in the process.

Top 3 blockchain trends in fintech

The scope of blockchain applications in fintech is truly enormous. Nevertheless, over the past few years, some trends have been of particular interest to audiences.

Smart contracts

Blockchain technology enables smart contracts. Smart contracts are completely digital contacts whose information is protected by encryption. Their key difference is the automatic control and execution of contract clauses. When the conditions are met, the contract is completed automatically, without any additional actions or legal involvement. Smart contracts allow you to track the entire supply chain, which reduces or completely eliminates the possibility of product counterfeiting or illegal actions with it.

DeFi

DeFi stands for decentralized finance, which uses a blockchain network to enable customers to access financial products and services without intermediaries such as central banks and institutions. DeFi is emerging as a better alternative to traditional finances without intermediaries to offer a more trusted, cheaper, and more secure system for transferring monetary assets.

Digital currencies

Another area where cryptocurrency affects the traditional banking system is CBDC (Central Bank Digital Currency). Simply put, CBDC is a blockchain-based digital dollar. Unlike the decentralized bitcoin, the CBDC is designed to be under the full control of the national government. Despite the rather questionable experience of Venezuela, which launched its first national cryptocurrency, CBDC Petro, in 2018, many countries continue to develop their national cryptocurrency intensively.

Top 10 Fintech Companies Using Blockchain Technology

Ripple operates as a global payment network leveraging blockchain technology to transfer funds worldwide. Well-known international financial institutions such as American Express, BBVA, and BMO utilize Ripple's secure blockchain platform to manage and facilitate payments.

The two largest payment processing networks in the world, Visa and MasterCard are a great example of blockchain in fintech. Visa and MasterCard are adopting blockchain solutions to make transactions secure, scalable and interoperable.

Goldman Sachs, a leading U.S. investment banking institution, launched an educational microsite highlighting blockchain's potential to simplify global transactions. Goldman Sachs backs USDC, a stablecoin tied to the U.S. Dollar, offering stability in a volatile crypto market, enabling global fund transfers without concerns about cryptocurrency fluctuations.

J.P. Morgan engages in blockchain in fintech, utilizing Confirm, a blockchain-based account validation app, the bank enables swift verification of beneficiary account details for efficient payment processing. Their blockchain application, Liink, offers peer-to-peer data transfer for financial institutions and corporations, attracting 382 banks due to its adaptable API.

The cryptocurrency exchange platforms such as Binance (Binance Smartchain), Coinbase (Base Blockchain), OKX (OKX chain) and KuCoin (KuCoin chain) have developed and currently utilize their respective blockchain networks. Each platform offers trading, DeFi, token creation, or facilitating blockchain in fintech.

Cases of Fintech Blockchain

Singapore Exchange Limited

Singapore Exchange Limited, an investment company that provides trading services across Asia, is using fintech blockchain for efficient interbank settlement. The implementation of the technology has solved several problems, including batch processing and manual reconciliation of several thousand financial transactions.

J.P. Morgan.

On April 12, 2021, J.P. Morgan stated that they are leveraging the power of fintech blockchain to enhance money transfers. To reduce the verification time necessary to make major transactions, they are using blockchain technology.

Swedish Central Bank

The Swedish Central Bank has experimented with issuing its own digital currency, known as e-krona, which is based on R3 Corda distributed technology. Sweden's central bank has in fact taken the courageous step of creating a usable cryptocurrency nationwide.

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Many of the possible fintech blockchain scenarios are still only theoretical. It takes time to start applying them in practice - the development, testing, and patenting of systems sometimes take a very long time. Nevertheless, there are many fintech blockchain cases that have already been successfully implemented in practice. If you start developing your own blockchain fintech solution now, you are guaranteed to occupy a vacant niche and gain a unique competitive advantage.

The Perfsol team is ready to help you achieve your goal. Contact us to get expert advice and discuss cooperation details!