Ecosystem that includes all. FinTech has garnered positive attention from around the world for its ability to instill comfort and user-friendly interface in various domains of financial service including Banking, Lending, Insurance, Transfers, etc. Introduction of Blockchain in FinTech industry has further streamlined the services, adding up to the fruition of the industry. With Blockchain replacing the traditional technology in the workflow of Fintech, it is becoming increasingly essential for us to develop an understanding of the underlying processes of this one-of-a-kind technology.
Blockchain is a decentralized digital ledger that holds records of digital data or events in a manner that makes them tamper-resistant or ‘immutable’. While many users may have access and can inspect or add to the data, they can’t alter or delete it. According to a study published by Statista, “the Blockchain is used mostly for international money transfers, which was about 60%. Other usages include KYC and anti-money laundering, predictions and stock markets, collateral management, trade surveillance and so on.” The report discussed Blockchain usage opportunities among financial institutions worldwide in 2016.
Blockchain and Financial sector are brought together with the aim of improving the lives of the unbanked. FinTech is a crucial element in providing solution to the global issue of financial inclusion. If we consider the history of technology adoption in financial sector, innovations have been constant beginning from the introduction of core banking systems in the 1970’s and 80’s, the ATMs came in the 1990’s, and entry of mobile money (e.g. M-Pesa in Kenya) in the 2000’s. World believes that the amalgamation of Fintech and Blockchain can achieve new heights. After all, banking has been around since the beginning of the Ancient Greek and Roman periods and even before that. The first banking systems were founded to facilitate trade in the MENA Region. However, today, 86% of the population in MENA are excluded from receiving Financial Services.
What is the reason behind their drift? Why are banks serving the wealthier? This is the province where Blockchain can come in handy with its strength and capability to reach all while eliminating ambiguity and inducing transparency. This makes banking on Blockchain extremely customer-friendly, quick and efficient. It can reclaim the lost trust and credibility of banking systems in the hearts of users.
Benefits of Blockchain for FinTech
- Security: The major concern of customer has always remained security, provision of which is the foremost priority for FinTech companies. Financial intermediaries like a stock exchange, money transfer services and even banks are suffering from economic fraudulent cases. One of the common reasons for this is the centralized database that is vulnerable to cyber-attack, leading to the destruction of the entire database. As soon as they gain access to one system, hackers get the path to breach other security systems as well, leading to more loss and security failure.
Blockchain is an optimal solution to avoid these situations as it is a distributed ledger, wherein data is decentralized, stored in blocks, and each block holds a timestamp (a cryptographic hash function). Each block contains a link to previous block’s hash, thereby creating a chain of records that cannot be fabricated. Network like this would require access to multiple blocks for breaching the security system which is next to impossible, this reduces the damage caused to the financial institutions.
- Elimination of Intermediaries: The entire FinTech industry is striving to make financial services efficient and cheaper. But there’s an excessive number of intermediaries in the process, each of which gets their profit margin in a transaction. They can also access your private data making it vulnerable to security breach and tampering. Reducing the number of intermediaries makes the process quicker, cheaper and more transparent. Blockchain system is a peer-to-peer network than provides utmost security which no other financial technology has been capable of doing in the past.
- Smart Contracts: Before understanding the peculiarities of smart contracts, we must believe that they have come to free us from the bureaucracy and stagnation of the systems. They are fulfilling automatic agreements that don’t need manual approval to work. Smart contracts include setting the conditions which are essential for the execution of a contract.. It can induce speed and reduce human error percentage in consummating each contract.
- Cost and speed of transactions: Even though it takes a lot of processing power and time to make changes in a Blockchain, it is more efficient since the operation is performed in a single system. If we just consider international payments, it’s almost certain that adapting to Blockchain for transactions will make the process faster. It will omit the need to wait for several days for its completion. Transactions do not require approval from numerous authorities and financial institutions that lie between the sender and the recipient.
FinTech industry has realized the evident difference Blockchain has brought by making its applications real-time, fast and secure. LALA World has stepped ahead from its competitors by introducing the Blockchain based digital identity. This new development is a prominent feature of Fintech industry that simplifies the authentication system. In implementation of Blockchain, LALA World was is in the process of putting together an efficient financial