Top five use cases for blockchain in fintech

Blockchain is sure to change the way we operate. Since blockchain is a decentralized ledger with a strong focus on cryptography, security and privacy, it is ideal for banking applications and fintech.

Most banks are now using blockchain technology to create more efficient ways of recording data. In 2020, the market share of blockchain in banking was 29.7 percent. Since blockchain allows you to update data in real time, it is a more cost-effective method of recording transactions without intervention.

Here are a few use cases of blockchain in fintech/banking.

1. Digital identity

One of the most important aspects of online banking is security. The banks must ensure that the transactions they carry out are secure and validated. Most banks have their own security algorithms to verify the user’s identity. But for customers, they are often a big problem as they have to go through multiple security checks for simple tasks like checking their balance, transaction history, etc.

Banks sometimes also perform KYC (Know Your Customers) tools that further irritate customers. If you have accounts at different banks, going through different security protocols can be confusing, time-consuming and frustrating.

To counteract this, you can use the power of blockchain. With it, you can create your digital persona instead of relying on the one created by banks. You can also reuse your persona for identification at different institutes and locations, which will allow you to save time and effort. You can also customize your avatar, allowing you to create a personal and accurate digital identity.

This technique can accelerate identification and validation at the institutional level. Through their digital avatars, clients can transfer funds, share data and perform other banking-related activities such as loans, claims and drafts. Since the data stored on blockchain networks is much safer than traditional volumes, fintech organizations prefer it for their software requirements.

2. Trade

Even these days, most trading companies require a lot of paperwork. Not only that, if you shop on the weekend, payments and transfers will be delayed. Since suppliers all over the world use trading systems, there is a need to establish a system where all participants can easily check and verify the trade. The trading system must ensure that all participants have correct entries and that users can make changes securely at any time they wish.

Blockchain is designed to handle exactly this. It can improve the whole process by using a generalized ledger. And since the information is updated in real time, the flow of information is fast and it is easy to make business decisions and policies based on it. Such a system also improves the entire life cycle of the trade by reducing shorting risk and improving accountability.

3. Payments worldwide

Blockchain supports decentralized currency, meaning you don’t need to go through banks for payments or transfers. It can also help with faster and easier payments as it costs less to transfer money from one account to another. Since transferring through blockchain does not require third-party authorization, and banks do not require resources to transfer money, payment processing fees are also lower.

Blockchain will help improve the flow of currency around the world. Banks normally charge 10-15 percent of the amount transferred as a remittance fee. With blockchain, this comes down to three percent.

Blockchain payments are also very secure as all participants in the blockchain transaction must give their approval for the transaction to take place and anyone can check the updated ledger after the transaction.

Since you don’t require a third party to transfer money, you can use P2P transfer to do so. Through this, banks can compete with fintech startups and offer their own fintech-related services.

4. Investment and lending

Most investment bankers require credit history and financial details before investing. They need to make sure their money is in the right hands. Through cryptocurrency, it is very easy to validate accounts and maintain an investment ledger.

Even without an investment firm, there are many ways startups can leverage blockchain to generate investment. These days, instead of just big firms, the general public can also invest in cryptocurrency and blockchain startups. There are many other options such as IEO (Initial exchange offerings) and STO (Secure token offerings). They require your due diligence but are easy investment options.

Of course, the banks must still validate these through securities protocols, and these options must comply with the authorities’ standards. But through these, startups can generate investment from many investors and get advice from global strategists instead of relying on one hedge fund manager.

5. Revision

Auditing is a process that verifies the accounts and limits any inconsistencies. For most banking websites, this is a slow process and requires many man-hours as it checks requirements and compliance set by the organization and the government. For most organizations, data integrity is the biggest factor for auditing.

Auditing is done easily through blockchain. Through it, you can add records directly to the general ledger, enabling a more efficient way of storing and updating data. In addition, companies have unparalleled proof of real-time transfer of funds given that the ledger is absolute and true. This also allows them to have cleaner records. They can also use the general ledger for auditing instead of pulling data from different sources.

You can also use blockchain to verify transactions that are not recorded by users. Smart contracts and automated billing systems will allow your business to charge customers without manual intervention. Since the blockchain is immutable, there is no doubt about the transparency and accuracy of records.

Conclusion

There are many interesting applications of blockchain in fintech. There are also so many blockchain companies working on cryptocurrencies and blockchain applications that seek to provide fast and transparent fintech services. Although blockchain has some risks, it could change the way banks do business by allowing faster payments, easier audits and thorough identification.

Of course, to integrate blockchain into the systems, banks and fintechs need to make changes to their existing infrastructure. But rest assured, these changes will yield significant returns. There are good opportunities to expand existing solutions to new areas of use, which leads to an even better customer experience.