In recent years, Financial Technology Companies have disrupted the traditionally slow and cumbersome financial system. From innovative money transfer processes to the increasing prevalence of mobile phone payments; FinTech companies have revolutionized how we handle financial transactions. This is why $11.8 Billion was invested in FinTech companies in 2018 alone.
In the same breath, cryptocurrencies and blockchain have also had a profound effect on the FinTech sector. In particular, cryptocurrencies have disrupted how people transfer funds, make purchases and raise money. This means that blockchain technologies have profoundly influenced the FinTech sector, and you can expect to see new trends arising from this space soon. For example, commercial banks, credit card companies, and loan providers are adjusting their business models to adapt to the new wave of cryptocurrencies.
But how exactly is blockchain changing the FinTech sector? Read on to find out.
Using cryptocurrencies in daily bank transactions
Many commercial and central banks are exploring the possibility of introducing their own cryptocurrencies into the blockchain system. Owing to the success of BitCoin, banks can see the benefits of having a stable, non-influenced, and secure cryptocurrency in the market. Indeed, cryptocurrencies are cheaper to manage, have lower transaction costs, and result in more streamlined transactions. Furthermore, these currencies will give financial institutions full control over their monetary policies and financial regulation practices.
Recently, JPMorgan launched a new cryptocurrency called the JPM Coin. It’s intended to settle payments instantaneously between clients in a low cost, secure, and efficient manner. As more banks continue to explore cryptocurrency options, users can expect to spend less on banking transactions while having more access to FinTech services. The distributed ledger system of cryptocurrencies also makes it easier for people without bank accounts to access financial services using alternative channels (such as mobile phones).
Verifying the identity of persons
Every year, FinTech companies spend millions of dollars on developing systems that can detect and prevent fraud. Top of the list is identity theft and money laundering, where people still manage to bypass security frameworks and infiltrate loan, investment, and other sensitive financial transactions.
The good news is that cryptocurrencies can be used to enhance transaction security by verifying a person’s identity. Indeed, cryptocurrencies that use a distributed ledger provide a detailed trail of how transactions occurred during a specific period. Any party cannot modify this distributed ledger, and thus will provide evidence of the identity, background, and nature of each transaction.
Using cryptocurrency for efficient money transfer
A large portion of the FinTech sector is devoted to making money transfer more efficient across the world. By using cryptocurrencies, cross border payments can be streamlined to become cheaper, faster, and safer. Current money transfer processes are bogged down by physical currencies, cumbersome bank procedures, and complex exchange rates.
By using cryptocurrencies as the primary means of money transfer, financial institutions will be able to save on costs while moving funds more efficiently.
Increasing the availability of credit
Just when the financial sector is choking up loans and the smooth flow of credit, cryptocurrencies are increasing accessibility to loans and other similar services. Blockchain technology makes it easier and cheaper for financial institutions to avail credit to customers at competitive rates.
How so? First off, a distributed ledger makes borrowing and repayment more secure. This reduces the prevalence of fraud, and financial institutions are more likely to get their money back (plus interest) after extending credit to a customer. And because the entire process is streamlined and efficient due to cryptocurrencies, banks and other creditors will have an easier time expanding their loan portfolios.
Shifting payments to mobile phone platforms
Accessibility to FinTech services has long been a challenge for millions of people around the world. Cryptocurrencies are making access to digital payments, money transfer, banking, and other similar services more accessible. By bringing FinTech to mobile phones, cryptocurrencies can be used to pay bills, transfer money, access loans, and even purchase insurance. All these transactions can be done safely- thanks to the distributed ledger.
The accessibility of FinTech on mobile phones is also made possible via cryptocurrencies. This is because users don’t need to own a bank account, carry around physical notes/coins, or go to a specific location (such as an ATM) whenever they need to make a financial transaction.
SOX compliance and cryptocurrency
As cryptocurrencies continue to disrupt the FinTech industry, the need for regulation and monitoring is at an all-time high. Indeed, financial transactions involving cryptocurrencies will need to be checked for compliance with SOX reporting standards.
SOX was initially implemented to control how financial reporting is done, especially with regards to assets, expenses, auditing, and management oversight. With cryptocurrencies and blockchain becoming more prominent, FinTech companies will need to develop a compliance model that falls in line with accounting and auditing best practices- particularly when it comes to recording crypto currency-related transactions.