How Blockchain Transforms the Financial Industry
Blockchain is a fairly new technology that is still looking for its place on the market. Recently, it has been increasingly mentioned related to Fintech, and this is not surprising. The capabilities of this technology have already changed financial services and continue to transform the industry every day. According to MarketsandMarkets, the global blockchain market size is expected to grow from USD 3.0 billion in 2020 to USD 39.7 billion by 2025 which means in 5 years, the number of blockchain solutions will increase 13 times. Seeing this, financial institutions hire specialists to study the technology and develop the most effective scenarios for its implementation.
The investment in blockchain is impressive. First of all, financial institutions see technology as an opportunity to reduce operating costs and increase work efficiency. The distributed ledger system has unique transparency and security features at the same time. Of course, we can’t say that everything’s perfect. Particularly, blockchain is difficult to apply due to the lack of government regulation and industry standards for technology in most countries. Nevertheless, this doesn’t slow down financial startups, which create serious competition for traditional financial institutions.
Blockchain and Digital Banking
At the beginning of its appearance, blockchain became a kind of competitor to traditional banks. A huge number of financial startups have created a promising alternative to the payment systems we are used to. The banking industry has chosen a course for a deep study of technology and soon blockchain began to transform the existing system, making it more technologically advanced and relevant to the needs of customers.
Today, banks increase their operational efficiency, reduce domestic costs, while increasing user satisfaction. Transactions are faster. Access to customer data is simplified. Also, thanks to blockchain technology, the cost of such business processes as checking and confirming transactions and analyzing erroneous money transactions can be halved.
Blockchain and Smart Contracts
Blockchain launched the ability to use smart contracts that help secure the exchange of assets without resorting to intermediaries. At the same time, transactions remain transparent and secure. Due to the fact that smart contracts contain information about the obligations of the parties and sanctions for their violation, they automatically ensure that all conditions of the contract are met. So, in the near future, we won’t need brokers and notaries to conclude a contract. Also, smart contracts open up the greatest prospects for the insurance industry. Creating policies in the form of smart contracts on the blockchain provides complete transparency and traceability of each step, and payments can be made automatically.
Blockchain and Asset Management
Blockchain can digitalize everything, even assets. Converting the right to an asset (be it real estate, securities, or gold) into a digital token is called asset tokenization. We all came across this when paying for purchases using Apple Pay. The character set that corresponds to the payment card is transferred to the seller. Blockchain provides transaction security by expanding the properties of ordinary tokens.
The tokenization of assets significantly increases their liquidity. For example, the real estate market has a high entry threshold for investors, but thanks to tokenization, almost everyone can invest by buying a certain amount of tokens. This opens up new opportunities for small investors. Now they can participate in the investment process without joining investment funds, as well as trade assets in the secondary market according to a simplified scheme.
Blockchain and Fintech Startups
We owe financial startups the appearance of such a direction as Fintech - high-tech and innovative financial solutions. Financial startups were the first to use blockchain technology for transforming financial services. Hundreds of startup businesses around the world are competing to make payments instant, secure, and free of commissions.
Fintech presented us with online translation services, P2P currency exchange, contactless payments, and much more. Instead of developing custom fintech software solutions, some banks buy startups or enter into partnerships and invest in them. According to Statista, only the Americas have 5,779 fintech startups, which is 35% of the world’s fintech company market share. Free of obligations and with much lower risks than huge traditional structures, startups are not afraid to experiment with blockchain technology which opens up new opportunities for the whole world.
Last but not least
Blockchain is a breakthrough technology for many industries. Offering opportunities for building a transparent and efficient system, it has become the driving force in the digital transformation of finance, healthcare, education, logistics, and the government. Financial services, as an area associated with all other industries, is at the center of these changes. According to the forecasts of some experts, blockchain will make an even greater revolution in the near future, as more and more companies around the world show interest in it. Well, will see.
About the author:
Viktor is a ManagingPartner at IdeaSoft, a custom software development company providing complex software solutions for business. About 4 years helps business owners to find profitable software solutions to obtain new outstanding results. He has experience implementing Blockchain, Mobile Development, AI and Machine Learning, Smart Contracts Development, and others.