In recent years, cryptocurrencies have had a significant impact on financial markets throughout the world. According to industry experts, it’s only a matter of time before governments and major financial institutions like FinTechs accept crypto-cash as a legitimate currency. Already, this decentralized blockchain system is changing the way people manage assets and transact business. The main challenge remains whether cryptocurrencies have a greater future and how they will ultimately get applied to mainstream industries such as FinTech.
FinTech emerged during the dot-com era, with pioneer companies such as PayPal paving the way. However, it only attained mainstream status due to the impressive growth of startups playing in this industry. The industry has primarily been driven by advances in cloud technology, the Internet of Things, artificial intelligence, and big data. Thanks to heavy use and the promotion of large banks that invest in it, FinTech is no longer a new concept. KPMG estimates that there has been an eighteen fold growth in global FinTech investment from $980 million to $16.8 billion in the last decade. This attests to the impressive uptake of FinTech by professionals, corporations, and individual investors.
The accelerated growth in the popularity of FinTech is akin to the blockchain frenzy that we have witnessed in the recent past. The bedrock of FinTech’s popularity has been its ability to ensure financial inclusion. A similar narrative has been used to promote major cryptocurrencies. Both sectors use innovation and technology to compete against traditional financial institutions and their intermediaries.
Generally, FinTech participates in and influences four significant aspects of the financial system. These are payments(peer-to-peer payments and digital wallets), investments (peer-to-peer lending and equity crowdfunding), financing (crowdfunding, credit facilities, and micro-loans), and insurance (microinsurance and risk management).
Thanks to its business prospects in these areas and others, FinTech has attracted government agencies and financial institutions to help bridge the gap in financial inclusivity. Blockchain will play a significant role as far as the future of FinTech is concerned. A critical feature of blockchain technology is cryptography, which is already revolutionizing the current security paradigm. Already, established security models, including those used in credit and debit card payments, are creating security walls to lock people out of their networks. Encryption keys are then handed to a few people who are allowed to access certain information.
On the other hand, blockchain allows all participants to access the ledger and manipulate it securely without requiring central authorization. The idea behind this is to enable as many people as possible to access the network. With more people, it gets even harder to hack the system. Cryptocurrencies are digital currencies that get formed based on a blockchain’s cryptography feature. Together with cryptocurrencies, blockchain can transform the financial services industry. Dozens of financial corporations are already exploring or implementing distributed ledger technology, which is the bedrock of blockchain and cryptocurrency. For instance, Deutsche Bank is exploring blockchain in asset registries, payment of fiat currencies, and the enforcement of derivative contracts.
FinTech technologies, such as banking apps, are playing a significant role in revolutionizing the financial services industry. Payments are now faster, something that has given users more control over their finances. The future looks promising as far as FinTech and blockchain technologies are concerned. The next technological breakthrough that you should expect to see is the convergence of blockchain and IoT. FinTech and cryptocurrencies will help various industries to expand, and this is attested to by the burgeoning uptake of online trading by businesses and individuals. Secure and faster cross-border transactions are now a reality, thanks to FinTech and blockchain.
FinTech companies will create smart contracts on blockchains, allowing the facilitation of all transactions that can be digitally represented. Therefore, there’s so much that can be achieved by leveraging the two technologies. This will open up a ton of opportunities within the banking and finance realms.