blockchain for the finance and fintech

In this article we will explain the possibilities offered by Blockchain for the finance and fintech sector. We will show you the benefits that this technology offers thanks to the support of concrete market data and, above all, thanks to the know-how of the entire team of our software house, which has been helping companies and businesses of all kinds to make their business successful with Blockchain since 2018.

Blockchain: a technology born in 2009 that has found immediate public acceptance thanks to cryptocurrencies. Since 2009, a lot of things have happened, and Blockchain has been able to receive implementation in so many market areas already. We at Scaling Parrots reiterate this every time we get the chance: we are currently in a prehistoric age compared to the real potential this technology has to offer.

One thing is certain, however: some areas, much more than others, are already investing heavily to transform and innovate with the support of Blockchain. One of these is the finance sector, whether you want to identify it as the more “traditional” one (consisting of major banking institutions) or the more “tech oriented” one (taking the name “fintech”).

But what are the benefits that the finance sector gets from the implementation of Blockchain within its processes? Let’s find out together in the following paragraphs, starting with some market data.

The industry with the largest implementation of blockchain technology

According to a study by the Observatory Blockchain and Distributed Ledger, by 2021, the finance/ fintech sector is the sector that has invested the most in Blockchain technology within its processes and services, accounting for 38% of the total sectors.

The finance sector covers 38% of total investment in Blockchain. More than twice as much as the public administration (16%) and remarkably more than the media sector (7%) and the agrifood sector (6%). The rest of the sectors do not even equate in their aggregate to the value of the finance market alone.

blockchain for the finance is the first application of the technology to 2021

The finance sector covers 38% of total investment in Blockchain. More than twice as much as the public administration (16%) and remarkably more than the media sector (7%) and the agrifood sector (6%). The rest of the sectors do not even equate in their aggregate to the value of the finance market alone.

Certainly, this is not something new: if cryptocurrencies have been an immediate success within a few years, it is physiological that its target industry has noticed the potential of Blockchain and begun to give funds for the digital transformation driven by the implementation of the Blockchain.

Blockchain for the finance / fintech sector: 5 real benefits

We now list for you the benefits that Blockchain brings to the financial sector. We are aware of the complexity of this technology. Therefore, we will try to be clear and comprehensive using the simplest language possible.

1. Immediate payments and liquidations

Let’s start with the absolute most common activity performed in finance: receiving and sending payments. We are talking not only about payments from customers, but also about transactions that take place between institutions and banks. Both small and massive amounts of money. In this case, the Blockchain offers fast and cheap transactions, thus affecting two major deficits in traditional banking circuits. There are already so many Blockchains that have made immediacy and cheapness of transactions their strong points. We expect that in the long term these may take over from current “old-fashioned” transactions. 

Another factor to consider is the advantage this technology would bring to banking institutions for transaction management. These in fact use proprietary platforms, even distinctive from each other, going to create technological differences and expanding uptime. A common and impartial solution such as Blockchain would allow huge savings on transactions and greater speed than the platforms used by banks today.

Finally, as a last point related to money transactions, we want to mention the immediate liquidations that smart contracts guarantee between the parties involved in an economic agreement. In fact, the smart contract, as an immutable contract on a block chain, allows for liquidations to occur upon the occurrence of a defined event (for example: the striking of a time on a specific date), preventing one of the contracting parties from missing a payment.

2. Lower costs of operating financial services

The second benefit, which goes alongside the first, is an overall cost reduction associated with the introduction of technology into business processes. Just think of the savings per transaction (generally equivalent to a few cents or thousandths of a euro) compared to traditional banking transactions.

What’s more, by developing services with the support of Blockchain green, environmental impacts would be incredibly limited, going on to optimize a sector (banking) that today unfortunately contributes to the emission of dozens of tons of CO2 each year.

3. Decrease of fraud risk

One of the long-standing problems in the financial sector is undoubtedly that of fraud. Every year, money laundering and corruption occur around the world that affects the industry by billions of dollars, at the expense of transparent and legal economic growth.

Blockchain is, by its definition, a shared and immutable digital ledger. This means that every transaction that took place within it is visible to anyone thanks to the timestamp. What is the advantage of this aspect? Simple: traceability. Just as with any supply chain, it is possible to track all money transactions within the Blockchain, greatly preventing fraudulent transactions. It is certainly an excellent tool that decrease frauds and laundering, net of the fact that the Blockchain is not the solution to all the problems and that the illegal activities are and always will be difficult to stop.

4. Overall cost reduction through disintermediation

One of the characteristics for which Blockchain is called the technology of the future is clearly the concept of “disintermediation.” Moreover, it is the reason it was conceived in 2009 by the infamous Satoshi Nakamoto. In fact, it cuts third-party figures and entities that interfere in any supply chain or process. Take cryptocurrencies as an example: they aim to be decentralized, that is, to disintermediate central banks, which hold control over the printing of money and its value.

In the case of the finance and fintech sector, Blockchain thanks to smart contracts would allow the elimination of “superfluous” professional figures, going on to lower the costs of managing certain operations. Just think of liquidations: the smart contract can own within it a clause that automatically triggers a liquidation upon the occurrence of a defined event.

This means two things:

  1. No human figure involved in the liquidation
  2. Automation of a previously manual process

5. The reliability and invariability of smart contracts

We have already discussed the enormous potential that smart contracts offer in the article about the insurance industry. In that specific case, a smart contract would guarantee an immediate settlement of an insured in case the conditions set in the beginning occur (e.g., the cancellation of a flight). In the case of the finance sector, the smart contract is no exception because of what has already been explained in the previous paragraphs.

But besides the more “operational” benefits, why is a smart contract a better solution than any other traditional contract? The reason lies in the fact that this contract is registered within a Blockchain. This means that:

  • The agreement between the parties is transparent as it is traceable and always verifiable
  • The contract is immutable and always will be: no one can ever, in any way, manipulate the information contained within it

How to apply Blockchain to the finance / fintech sector

To implement Blockchain in a finance or fintech company, it is good to know, first, that there is no universal and replicable solution for all companies. If you are an entrepreneur or manager in this sector, it is therefore important that you have the understanding that you need to thoroughly analyze the context to understand whether it is possible to implement the technology in any process of your company. 

To do so, it is a minimum requirement to ask for the support of a Blockchain software house that has a deep knowledge of the pros and cons of this technology, as well as the technical part related to it. We at Scaling Parrots are an enterprise Blockchain consulting and development company with numerous finance and non-finance projects to our credit, as well as successful case histories already active in the market.

How to request a free Blockchain consultation with our software house

To get our strategic support on how to implement Blockchain for the finance or fintech sector, you can request a free one-hour no-obligation consultation. We will be happy to listen to your ideas and guide you, if necessary, in renewal and improvement of your company.

Blockchain for the finance and fintech sector: Conclusion

In this article we discussed Blockchain for the finance sector and its benefits. We would like to remind you that this technology is a tool at the service of various kinds of business, with ever-changing goals and aims. To learn more about it, we invite you to visit our Blog “Blockchain for companies” where you will find all the guides and information that will easily introduce you to this topic.

The future is yet to be written, but we are at the forefront of it to be protagonists.

See you soon,

Scaling Parrots

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