How Fintech and Blockchain are Evolving and Disrupting Financial Institutions
Rudy Shoushany is the founder and host of DxTalks: The Digital Transformation talk show and digital events for MENA. Follow him on Linkedin.
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Blockchain technology is disrupting financial institutions in radically new ways. Rather than replacing what already exists, it creates a whole new market and an opportunity to bank the unbanked.
Blockchain creates new financial solutions that scale faster and are cheaper, safer and more accessible to even ordinary men on the street. It has removed the barriers to enjoying financial services, enforced security, removed middlemen and increased transparency.
Once dismissed by investors as worthless and called unprintable names by traditional financial institutions, blockchain is now at the forefront of acceptance and mainstream popularity in the global financial industry. Fintech companies are in an arms race to develop the best blockchain platform to support all types of transactions in unique contexts.
Will Fintech and Blockchain replace traditional financial institutions?
Traditional financial institutions may not disappear completely for several reasons. For example, if you want to use a bank account to prevent fraud and theft, there is no better way than through banks.
Furthermore, if you want to store your cash, you can do so in any country with a stable currency; this will not be possible on blockchain platforms due to volatility in the cryptocurrency market. And finally, many people are simply not comfortable using cryptocurrencies as they feel that these new currencies will have an unstable value, which negatively affects their finances in the long run.
However, blockchain will allow traditional financial institutions to cut a significant part of their costs. This will provide more cost-effective services that are aimed at everyday people rather than just the upper class.
Eight effects of fintech and blockchain on financial institutions
Below are just some of the impacts fintech and blockchain will have on financial institutions:
1. Improved service
Blockchain will be able to offer personalized services that suit specific needs. For example, suppose you are a trader – the bank’s platform should give you the ability to monitor the performance of your digital asset portfolio in real time. In contrast, if you are an individual who wants to open a savings account, you only need a simple online banking service.
2. Speed and cost savings
Blockchain technology can save businesses significant amounts of time and money. If you open a small business and want to pay taxes and other utilities, you need to apply for a license. The process is tedious and complex, but the financial institution will require the information from you (your bank account), which limits the number of businesses that can access this service.
On the other hand, blockchain can quickly provide this service, as it can be programmed to accept information from any source without the need for human intervention. This means that any company could apply for a license without taking time off from work or the like.
3. Shift in control
Human desires change and evolve. These increasing demands for open and secure financial transactions demonstrate the inability of traditional financial institutions to meet the needs of their growing customers. The democratization of finance is imminent, and traditional financial institutions will be decentralized by the disruptive power of the blockchain. Users will own and manage their data without having to deal with intermediaries.
4. Large size
The number of transactions a blockchain can process will be more than traditional financial institutions. Speaking of volume, blockchain platforms have what it takes to manage high transaction volume without slowing down, which is a viable competitive advantage. There are no boundaries; blockchains do not need to rely on intermediaries to process transactions efficiently.
5. Faster transactions
Financial transactions that were completed in days will now take seconds over blockchain platforms. This is because blockchain transactions do not require third parties for verification; rather, they are stored publicly. When you request one network node, it will be processed immediately across all nodes.
6. Lower costs
Blockchain technology will help reduce financial institutions’ operating expenses. This is because smart contracts will greatly reduce the need for labor and other related operational costs. Especially for large banks, cutting these fixed costs would be an effective way to increase profit margins since they already have many customers. The cost savings that blockchain can bring to financial institutions are enormous; it will offer services that provide more excellent value at lower costs than what is available in the market today.
7. Better transparency
Blockchain has better transparency than traditional financial institutions have. For example, if the US Securities Exchange Commission wants to trace the origins of insider trading, it can easily do so using blockchain. If we compare this with banks, it is challenging to trace payment origin through them, but the blockchain is completely possible and can be done in just a few seconds.
8. More possibilities
Because of their limitations, there will be far more opportunities and services that traditional financial institutions do not offer. For example, investments in the stock market that require significant amounts of time and money would not be offered by banks because they would not be able to process such transactions efficiently enough.
Last word
The rise of blockchain technology is bringing about a revolution that will help eliminate some of the limitations of traditional banking. This change will give everyone access to financial services, meaning that underprivileged, financially troubled and non-financially included countries can be financially included now.
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