Blockchain technology has gained many followers over the past decade, going far beyond the interest of only those who believe in the power of Bitcoin. As it has grown, it has been recognized that it can revolutionize the financial sector as well. However, in practice, the technology can be used in any industry where securing data exchange is crucial. Today, Blockchain technology changes everything from payment transactions to how money is raised in the private market. How can the Fintech sector use it?
What is Blockchain?
Blockchain can be most simply defined as a collection of transactions carried out by network users. This technology was first used in 2009 in the Bitcoin cryptocurrency and was created to record transactions. Blockchain technology is an electronic form of a record of all events recorded in chronological order. These events are in turn combined into interdependent blocks that are placed in the registry.
An important issue with this technology is making changes, which is subject to strict rules. Although users using Blockchain technology solutions have free access to data or sharing copies, it is impossible to modify them without appropriate permissions. Decentralization and dispersion of the register make it simply impossible to falsify data or delete it without authorization.
To put it simply, Blockchain technology finds its application wherever vast amounts of data are collected and processed. It is no different in the banking and financial sectors, which can perform many tasks – from document circulation, by increasing security or settling payments, selling products, and concluding contracts.
Fintech industry vs. new technologies
One industry that has shown moderate skepticism towards blockchain technology in past years has been the financial industry, specifically banks. They initially viewed the Blockchain concept as direct competition, aspiring to take over the control they had over their customers’ funds and accounts. However, as they became more familiar with the technology, especially in the context of security, significant players in the financial industry increasingly started to appreciate the possibilities of Blockchain, and the sum of the possible benefits offset their initial fears.
According to an analysis conducted by PWC, nearly 80% of banking and Fintech companies planned to adopt Blockchain technology by 2020. Banks making up a third of the institutions surveyed showed an exceptionally high propensity to leverage this technology’s capabilities in their operations. And data published by CEBNet shows that today nearly 400 banks and Fintech companies are using Blockchain, including Deutsche Bank, ING, Nordea Bank, PKO BP, Raiffeisen, BNP Paribas, and Santander Bank.
“Many well-known and respected financial institutions are now investing in Blockchain technology as it increases their competitiveness in an extremely dynamic market. Fintech sector consolidation, high competition, low-interest rates combined with increasing customer demands, and the desire to reduce operating costs are forcing banks to constantly look for effective development strategies. These, in turn, will be provided by the solutions based on Blockchain”. – explains Krzysztof Pawełko, Co-Owner, KLGsolutions.
Use of Blockchain technology in the banking services sector
A critical use case for Blockchain technology is in the banking sector, as security is of paramount importance to the finance sector. Payments, including cross-border payments, are the first and most important use case in any banking system. By using Blockchain technology, they are faster and cheaper than traditional methods.
Blockchain technology is also used in the so-called smart contracts, i.e., fully automated agreements between the parties. In practice, this means that fulfilling the conditions set out in the contract and the authentication triggers the next, predefined steps. In this way, the need to exchange documents is eliminated, and the most critical conditions of the process are saved as data in blocks. This form of service in the Fintech sector means many benefits – transactions are carried out automatically, faster and cheaper. Besides, the risk of mistakes, delays in processing applications, or forgery is significantly reduced.
Experts also see the potential of Blockchain technology in the context of analyzing data from distributed registers. The possibility of easily aggregating information from various sources significantly simplifies procedures for granting loans, including mortgage loans.
What benefits does Blockchain technology offer to the banking industry?
Banks and other financial institutions’ fundamental objective is to maximize profit and efficiency while increasing market penetration. Blockchain technology makes it possible to achieve these tasks in operational and strategic dimensions – mainly through more efficient and safer processing of digital documents and the development of a whole range of financial products dedicated both to businesses and individual customers.
Additionally, banking systems and applications using Blockchain technology give the possibility to:
- replace the entities intermediating in transactions with one secure and trusted network,
- standardize and streamline processes,
- replace manual activities with automated interactions between users,
- significantly speed up data processing, which in turn translates into cost reduction.
Significantly, the use of Blockchain technology capabilities in the Fintech industry also increases customer trust and effectively eliminates threats or risks of fraud in all banking areas, which also applies to trading platforms. Thus, a problem that the finance and banking sector is constantly facing – attacks by cybercriminals – is minimized. The decentralized nature of Blockchain is simply less susceptible to such crimes, and it poses a challenge to the hackers themselves due to the multi-step verification of each transaction and the ability to detect irregularities quickly.
Fin-Credit – a new dimension of banking
A perfect illustration of the presented opportunities that new technologies offer to the banking and financial sector is a Fin-Credit application based on Blockchain. It is dedicated to entrepreneurs and allows them to quickly and safely get a loan or purchase other banking products without leaving home. The whole process of service and finalization of the transaction takes place in a few simple steps. During them, the user verifies the cost of the service and has the opportunity to settle the amount due to the selected bank product. After filling in the customer’s application, an automatic verification process of his/her data in external databases (e.g., CSO, KRD) occurs. The security of the process is also ensured by an additional reCaptcha verification, which effectively protects the system against bots’ interference or other undesirable behaviors.
The next step is the calculation of the financial product price. Based on the collected data and business risk assessment, the algorithm calculates the cost of the service. If they are acceptable to the applicant, then after reviewing the terms of the agreement, the applicant can proceed with the application. All the steps are then confirmed with an electronic signature or via SMS, and the necessary loan documents are immediately delivered to the applicant. What is essential, if you choose to send the documentation by courier, the application automatically sends the tracking number, which allows you to monitor its status.
Entrepreneurs using Fin-Credit reduce the time necessary to obtain external financing for their projects to a minimum, ensuring fluency and increasing business profitability. Loans or other financial products are granted within a dozen or so minutes while maintaining the highest security standards. The Blockchain technology used to create the Fin-Credit application guarantees the administrators complete insight into the history of documents and contracts, and signatures. However, in the client’s panel, the most important data concerning the communication with the bank or another financial institution are available at all times.
The pace of changes in the area of new technologies and Fintech clearly shows the development of both sectors. Benefits resulting from Blockchain technology in automation of processes, better sales service, cost reduction, or increase in security and social trust far outweigh the initial fears and barriers. Therefore, this is an incentive for banks and other financial institutions to seek new solutions and use Fin-Credit applications in their daily work, increasing their operational and strategic efficiency.
Krzysztof Pawełko (KLG Solutions)