The FinTech Blockchain bond is so strong that many people often see these two different concepts as being the same. For nonexperts, the encryption technology is often perceived as being exclusive to the financial world. Although the potential benefits of using it to develop financial services goes unquestioned, it is worth mentioning that Blockchain is a stand-alone technology.
It can serve a number of purposes that do not exclusively relate to the financial services industry. However, because of its disruptive potential in this industry, it is worth zooming in to analyze how this perfect match can be used to deliver powerful financial innovations.
In this post we address Blockchain technology from a FinTech perspective, analyzing the intricacies to navigate and how it can benefit both the financial services industry and users.
What Is the Difference Between FinTech and Blockchain?
There is a common question one hears in technology-dependent industries: is Blockchain part of FinTech? The answer to this is no. The former is a powerful encryption technology that relies on a network of peers and powerful algorithms. Certain protocols are in place to guarantee that information is stored in a secure way and in a decentralized manner. This implies, among other things, that information cannot be altered without the parts involved being notified. Thanks to this encryption method, certain tasks can be automated in response to certain events (more on that later).
FinTech, on the other hand, refers to a specific industry where financial services merge with technology to provide powerful and innovative services; these are some FinTech companies to keep an eye on. In a way, one can think of the intersection of this industry and the aforementioned encryption technology as a unique hybrid. The resulting synergy is so strong that it leads people to believe that you can’t think of one without referencing the other.
Although there are many opportunities for innovation in terms of developing a FinTech Blockchain experience, one must keep in mind the fact that other industries, like HiTech companies, can also make use of the same encryption methods. This means that Machine Learning and other Artificial Intelligence features, and even industries like retail, can benefit from Blockchain.
What Is Blockchain FinTech?
Blockchain FinTech refers to a specific use case of the encryption technology. For the case of FinTech, the encrypted network of information is used as the main technology to provide certain financial services. This means that financial companies can develop secure and encrypted networks to provide innovative financial services. It wouldn’t be an understatement to say that, thanks to this perfect match, we can even expect a more decentralized financial system.
In the long term, it is users who benefit the most from this decentralization of services that are currently concentrated in the hands of the financial services industry. Traditional finance companies may have to adapt to this changing technological environment or face the risk of being replaced by new and more resilient agents. In the end, the players who remain standing will be those who are able to offer creative financial services that help improve financial transactions and services.
Is Blockchain Part of Fintech?
Although they are commonly thought of as two intertwined concepts, it is important to clarify that they are two completely different things. A reason why many people confuse them as being the same is probably because of Bitcoin.
This cryptocurrency uses Blockchain technology to provide a decentralized digital currency that can be used without having to go through different financial systems. However, Bitcoin is just only one of the use cases that are available at the intersection of these two concepts.
FinTech and Blockchain: What’s the Buzz About?
Blockchain advocates suggest that the technology will be able to solve many of the current issues with the financial system. Only time will tell if this is the case. However, that we will be able to have a more decentralized system is definitely a reality.
The Road to Decentralization
There are many reasons why a somehow decentralized financial future is likely. Besides being unalterable, Blockchain has the ability and potential to eliminate intermediaries. As a matter of fact, one of its main features is the possibility to bypass the middlemen in key processes that require human intervention. By doing this, it is possible to reconfigure the landscape for a wide range of industries, FinTech included.
For financial users, this means being able to do operations in a more efficient way. Costs can considerably be reduced as a result of leaner processes and transactions. At the same time, it also means increased security, reducing the risk of potential threats like cybercrime.
Another reason why a decentralized financial system is likely to occur is because of the possibility to track financial transactions through Blockchain. Thanks to its unalterable records, it is possible to audit transactions in a transparent way, helping prevent activities like money laundering. This has major implications at a governmental level. It is a game-changing possibility that might open up the door to have a corruption-free global financial system, but we are still a long way from getting there.
Smart Contracts
As I mentioned before, parts of a Blockchain code can be activated automatically in response to certain triggers. This is the case of smart contracts, a FinTech Blockchain use case that has potential benefits for the financial services industry.
Imagine the following case. Your late grandfather has passed away and he has left a will for all of his family. This sounds like a no brainer, but in reality, things can get messy. Everyone wants their piece, and negotiations between family members can end up in disputes. By using Blockchain, a will can easily be activated, preventing alterations and misunderstandings, giving to each family member the part that corresponds to them.
Blockchain Challenges
One question financial companies have is how to benefit from the rising Blockchain movement. As a technology, it is impacting the way traditional processes have been done for decades. Nonetheless, as a technology, it still needs to move past its infancy.
These are some of the challenges this encryption technology has to face:
Regulation
Even if a decentralized financial system was created as a result of the global adoption of Blockchain, nations would still need to look after it through regulation. How different countries decide to implement their laws and mobilize their institutions to look after new types of financial services will be determinant in shaping this technology’s future.
Trust
One of the main assets of money as we know it is its ability to generate trust. From investors to laypeople, money is widely accepted as something that has value in and of itself. The same needs to occur not only with cryptocurrencies but with any other Blockchain-based FinTech service.
Computing Power
Due to how it operates, Blockchain requires a great deal of computing power. In order for it to become widely adopted and scale, computers need to be able to deliver the necessary information processing power.
Energy Consumption
As a consequence of the needed computer processing power, energy consumption is bound to increase if this technology were adopted on a massive scale. A sustainable energy solution needs to be in place if this technology wants to move forward.
FinTech Apps Powered with Blockchain
There are many FinTech Blockchain companies changing the rules of the financial landscape. These are some of them:
Veem
Veem focuses on making international transactions easier for small companies through the use of their innovative platform. This helps reduce costs and avoid the painful bureaucratic processes of traditional financial institutions.
Robinhood
Robinhood is probably one FinTech company most people have heard of. Thanks to their easy-to-use app, they are changing how investments work. Users can easily buy and sell stocks and cryptocurrencies.
BitPay
BitPay uses Blockchain payment technologies to create easy to use solutions for people and businesses that need to send, receive, or store money anywhere around the world.
FinTech Blockchain Use Cases
As a somewhat new technology, Blockchain is constantly evolving. New companies are starting to show what’s possible when technological know-how and creativity come together. Although there is still a lot to do in terms of innovation, we are already seeing some powerful uses of this technology inside apps. These are some of the most important use cases:
- Money Traceability
- Credit Scoring
- Wealth Management
- International Transactions
- Smart Contracts
- Asset Management
- IoT Encrypted Devices
FinTech Blockchain App Development
Things are moving pretty fast in the financial landscape, and no one wants to be left behind. The secret to building a successful FinTech product that uses the power of Blockchain is to find the right development partner.
Companies don’t usually have the right tools and personnel to build a product that uses Blockchain in an optimal way while at the same time delighting users. There are many things to know when it comes to building an app, and you just don’t want to run the risk of building a digital product that is not good enough. That’s why an experienced app development partner can be critical.
At Koombea we’ve been building world-class FinTech apps since 2007, helping our clients engage their users through powerful technologies like Blockchain. We have the technical expertise, both in terms of development and design, to build your ideal app.
Contact us for more information about Blockchain technology and schedule a free consultation with one of our FinTech experts.
