FinTech is now amongst the hottest terms in the financial services industry. Everyone from corporate giants to startups is talking about this technology. It is gaining all the attention for the right reasons, but one thing that still concerns the users is security. Before using any FinTech solution, businesses want to make sure that it is safe for their firm and for their users and that they won’t lose their money or any other financial information. And this is why FinTech organizations have started using blockchain technology. Blockchain technology offers disruptive innovation that has the ability to change the traditional financial market and make it more secure.
In this blog, we will learn everything about FinTech, blockchain, and what role blockchain technology has to play in the FinTech services industry.
What is FinTech?
FinTech means the evolving intersection of technology and financial services. The term FinTech originally meant the technology applied to the back-end of trade financial institutions and consumers. But after the internet came into the picture, the term FinTech refers to technologies that are used to disrupt the traditional financial services, like mobile transfer, mobile payments, asset management, loans, and fundraising. It is a concept that touches every business that has to deal with financial services.
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To make it simpler for you, let’s go through an example. Every time you go online to make use of financial tools to make the transaction for any product or service that you purchased, you are using Financial technology or FinTech.
When you hear the word FinTech, blockchain is the term that goes along with it. The main reason behind it is that blockchain technology plays a significant role in financial innovations. Blockchain is turning out the backbone technology that is driving the revolution of FinTech.
And this makes you ask a question – What does blockchain actually mean and how does it work? So, to answer this question, let us understand blockchain.
What is Blockchain?
A Blockchain is a decentralized and distributed ledger. It is used to maintain a chronologically ordered immutable and permanent record of transactional data. This technology stores transactional data in a continuously growing list of records. And these records are known as blocks. Blockchain technology uses cryptography to securely link these blocks. Each of these blocks typically contains of three elements –
- A Hash pointer (link to the previous block)
- Transaction data
- A timestamp
Why FinTech Requires Blockchain?
Whenever we talk about the biggest challenges that any FinTech company has to face, the one word that comes into the discussion is trust. Financial software development companies have to create something that is totally secure and can be trustable. And sometimes FinTech companies lack funds, unlike banks which restricts them from creating a highly secure system.
To solve these problems, techies use Blockchain. Blockchain is a technology that is cheap when it comes to software development and offers highly secured features. Besides, blockchain being a series of immutable blocks enables financial software development companies to track the complete lifecycle of a FinTech transaction.
Basically, blockchain is a technology that has allowed the creation of a safe and secure financial product by bringing innovation to the financial sector. Besides, it has the potential to truly disrupt various industries and make the processes more efficient, transparent, and secure.
Top Use Cases of Blockchain in FinTech
- Smart Contracts
A smart contract is nothing but a computer code that runs on top of blockchain technology. This code contains a set of rules under which the parties consisting of it must agree to interact with each other. The agreement between two parties is automatically enforced if the predefined rules of the contract are met. The code of smart contracts can verify and enforce the performance or negotiation of an agreement.
- Share Trading
Purchasing and selling of shares and stocks involve many middlemen, like a stock exchange and a broker. But when blockchain is involved, its decentralized and secure ledger enables every stakeholder to have a say in the validation of any transaction. This completely eliminates the need for middlemen. And because of that, the settlement process gets quicker and also improves the trade accuracy.
- Digital Identity
Once blockchain gets involved with the digital identity management system, the users can select the way people identify them and also who can see their digital identity. But for this, the users have to register their identity on the blockchain.
- Digital Payments
When it comes to digital payments, the traditional transfer of value has been very expensive and slow. But with blockchain coming into the picture, the process has become faster and simple. People can now easily transfer money without worrying about its security.
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Conclusion
The FinTech industry is highly optimistic about blockchain technology. But this technology might take some time to become a mainstream FinTech model. As of now, blockchain is the only technology that can offer complete security to the users. With time passing by, the possibilities of this technology are still being explored. This will make FinTech a highly secure technology.
Disclaimer: This article was sponsored by FinTech Solution provider TatvaSoft.