The blockchain technology is currently gaining prominence by leaps and bounds and it’s being implemented in various industries, healthcare, retail and even Fintech. The efficiency of blockchain technology lies in preventing stored data from being tampered and access to all the users at any time. The features of the blockchain have the ability to transform the functioning ways of the companies where complex transactions are completed within a matter of minutes, and thus increasing the output.
Blockchain and Fintech working hand-in-hand
• Cross border payments: The decentralized system ensures that only the concerned parties (sender and recipient) know the particulars of the transaction. The blockchain records all the transactions and validates them and even the participants cannot delete or tamper the data post execution. Fintech companies like Æternity have integrated the blockchain technology to create scalable smart contracts. The objective is to secure automated payments. Being a peer-to-peer transfer facility, the intermediaries are eliminated. The transaction fees for cross border transactions generally is 1.7 to 16.18 percent of the total transaction amount.
• In the trading arena: The trade financing arena RDX requires substantial paperwork that is exchanged among the brokers, exchanges, clearing agents and the traders. The process can take up several days if traditional method is followed. The traders will thus have to maintain their own database for accuracy and prevention of data theft. Fintechs are using blockchain technology to relax the traders from doing continuous checks of counterparties and improve the whole system of trading.
• Regulatory compliance through blockchain: The Fintech companies are implementing blockchain to speed up the regulatory compliance and audit process. The modern technology actually reduces the risks significantly, uncertainty, and complexity concerning the regulation. Coinfirm is a compliance platform that depends on blockchain technology and offers in-depth reports on financial risk. The platform also verifies the authenticity of all types of documents. Accounting firms like EY has introduced the EY Blockchain Analyzer and PwC has also announced a blockchain validation solution.
• Know Your Customer (KYC): Blockchain technology can help with thousands of KYC processes by reducing the costs and labour involved. Companies like ShoCard, HYPR, BlockVerify, Identifi and Civic are now offering universal digital identity solutions. The blockchain will also assist the firms in the process of establishing corporate identities while taking on new employees. uPort has developed a digital identity management product that serves both individuals and enterprises.
• Credit scores: The conventional credit ranking institutions are not always able to reach out to all the individuals and SMEs. The neglected customers mostly include people residing in rural areas, those who do not have any account at a bank or insured institution. The blockchain offers a new way of tackling this issue as shown by Fintech companies like Enigma, Colendi and Bloom.
Numerous fraudulent cases have been reported by financial intermediaries like money transfer services, stock exchange as well as banks over the past two to three years. The centralized database is at actually prone to cyberattacks and a security breach will affect the whole network. Blockchain, on the other hand, is a distributed ledger and all the data are encrypted. A block contains the link to the previous block’s hash and thus forms a chain of records that cannot be tampered with.