The traditional-slow financial industry has experienced significant shakeups by FinTech startups in recent years. From mobile payments to innovative money transfer services, the financial industry has seen a major turnaround thanks to the efforts of different FinTech companies. It is, therefore, not surprising that FinTech companies received over $11 billion in investment funds in 2018.
Just like FinTech firms have shaken the traditional financial industry, so has blockchain, and cryptocurrencies affected these firms. In particular, cryptocurrencies have overhauled the way that we raise money, buy goods and services, and transfer funds.
As blockchain technology continues to mature, new trends in the financial industry are expected to rise. This explains why traditional credit card companies, loan providers, and commercial banks are adjusting their business models to accommodate the new reality of cryptocurrency transactions.
How Blockchain Can Be Used In The Financial Industry
How can blockchain be used in the FinTech industry? Read on.
Verifying Customer Identities
One of the major challenges that FinTech companies have to deal with 24/7 is fraud. Every year, players in the industry spend millions of dollars in developing systems that can detect and prevent fraud. Among the most common types of fraud that the firms are exposed to are money laundering and identity theft. Today, hackers are using more sophisticated tools to bypass security frameworks and infiltrate investment, loans, and other sensitive financial transactions.
Cryptocurrencies can help to curb transaction fraud through customer identity verification. Moreover, with cryptocurrencies that use a distributed ledger, it is easy to uncover a trail of transactions connected to a person over a specific period. This distributed ledger cannot be modified by third parties, which means that the information contained there is uncorrupted.
Using Cryptocurrencies for Daily Transactions
Some central banks and commercial banks have started building systems that will allow them to have their own cryptocurrencies in the blockchain system. The success of Bitcoin has made banks see the benefits of having a secure, non-influenced, and stable cryptocurrency on the market.
There are various reasons why cryptocurrencies make sense for commercial banks. For example, the currencies have lower transaction costs, are cheaper to manage, and streamline transactions even further.
By introducing their own cryptocurrencies, financial institutions will have full control of their financial regulation practices and monetary policies.
Efficient And Secure Money Transfer
One of the largest services offered by FinTech players is money transfer across geographical boundaries. At the moment, the service is faced with many challenges, including complex exchange rates, cumbersome bank procedures, and physical currencies.
Cryptocurrencies can make cross border payments more efficient. The payments can be streamlined to be safer, faster, and cheaper. By using cryptocurrencies, financial institutions will be able to move funds more efficiently and at a lower cost.
Enabling Mobile Phone Payments
Traditionally, accessing FinTech services has been a challenge got many people. It is estimated that 1.7 billion adults around the world do not have a bank account. These people are locked out of financial services.
Cryptocurrencies are making it easier for people to access digital payments, banking services, money transfers, and other similar services. With more people having mobile phones than bank accounts, it makes sense to bring FinTech services to mobile phones to promote financial inclusivity. Cryptocurrencies can be used to access loans, transfer money, pay bills, and even purchase insurance thanks to the incorruptible distributed ledger.
Promoting Easier Access To Credit
The traditional players in the financial sector have stringent requirements that borrowers must meet to access credit. However, sometimes these requirements do not reflect a true picture of the capability of a consumer to afford credit. The result? Millions of people are locked out of accessing affordable credit.
Blockchain technology is poised to increase the ability of consumers to access credit. The technology makes it cheaper and easier for lenders to provide credit to customers and at competitive rates. Through distributed ledgers, lenders can get a true picture of a borrower’s ability to pay credit based on past transactions. Since the distributed ledgers cannot be compromised by third parties, financial institutions will be more confident to lend, and in effect, expand their loan portfolios.
Cryptocurrency And SOX Compliance
As the FinTech industry continues to evolve and new businesses arise, new regulatory measures are being instituted to protect both organizations and their customers. Many governments are drafting rules that will govern the cryptocurrencies playfield. FinTech companies that use cryptocurrency will have to ensure they are compliant with SOX reporting standards.
SOX was designed to provide guidelines for financial reporting with reference to management oversight, auditing, expenses, and assets. However, as cryptocurrencies and blockchain continue to be adopted in the financial industry, companies will have to come up with compliance models that align with the best auditing and accounting basics.
Will cryptocurrency become mainstream and eventually replace cash? Only time will tell.
