September 27, 2022
6 Challenges of Blockchain Implementation in FinTech
Even though FinTech wasn’t among the first industries implementing blockchain technology, now the space understands how transformative this technology could be to generate higher income, increase safety, improve the end-user experience, delivery process, and efficiency, as well as significantly reduce risks in business operations.
That is because FinTech is in its evolving stage, and the demand for more secure and efficient processes is growing every day. For example, some companies have already developed their applications and services specially designed to offer better and new approaches to processing and managing payments.
Now FinTech makes up the big share in the blockchain domain for many valuable reasons. According to Statista, the global blockchain market was estimated at 5.85 billion U.S. dollars in 2021. Experts also predict that the market will reach 1,235.71 billion U.S. dollars by 2030, growing at a compound annual growth rate of 82.8 percent.
The same source reports that the U.S. implemented 158 examples of practical implementation of blockchain technology in banking and financial services in 2019. China became the second country to implement 56 blockchain projects in the FinTech industry.
Combining two powerful technologies, Decentralized Finance (DeFi) seems to become an emerging financial technology that helps to reduce bank control of financial services and money. However, implementing blockchain is a challenging task that may cause issues during the process without enough knowledge and skills. We created this guide to showcase the blockchain challenges you may face when implementing this technology in banking.
Blockchain Use Cases in FinTech Industry
1. Digital Identity
One of the most well-known and important uses of blockchain in banking is security. It is essential for banks that develop mobile apps to make sure all transactions are secure and validated. In 2022 a large percentage of banks will have their security algorithms to confirm user identity, taking too much time from customers trying to go through multiple security checks in order just to check the card balance.
To make it easier for clients to use your applications while still providing the highest security levels, you can consider implementing blockchain. Using the power of this technology, users can create their own digital persona instead of relying on one that banks create. In addition, users are able to customize their avatars, making a much more personalized and accurate digital identity.
Even though trading has been highly popular for many years, this industry still deals with daily paperwork. In addition, payments that happen during the weekend require you days until they will be delivered. However, people are looking for convenience and speed, so the need for an established system where all participants can easily check and verify the trade is high. Modern trading systems should guarantee that all participants have correct entries and that clients are able to perform changes securely at any time they need.
3. Payments Across the World
Thanks to many events happening in the world, payments available all across the world are in high demand. Again, modern consumers are constantly looking for efficiency and affordability in every part of their lives, and payments are not an exception. Since blockchain supports decentralized currency, the need to go to banks for payments and transfers is reduced.
In addition, blockchain-based apps for payments can also help in faster and easier payments as it costs less to transfer money from one account to another. Blockchain-based transfers do not require third-party authorisation, and banks don’t need resources to transfer funds, making payment processing fees less.
4. Investing and Lending
Most banks that provide loans require credit histories and finance details. That is because no one wants to risk money. Cryptocurrencies make it hassle-free and quick to validate accounts and maintain an investment ledger.
Even without investment organizations, blockchain also offers a variety of options for startups to generate investments. For example, instead of asking banks for loans and investment firms, blockchain startups can ask the general public to invest in cryptocurrencies.
Auditing refers to the process that verifies the accounts and narrows down any inconsistencies. In most cases, this is a time consuming and slow process which requires lots of manual work since it checks requirements and compliances set up by the company and the government. Most organizations consider data integrity as the key factor for auditing.
Thanks to blockchain technology implementation, auditing is becoming easier. Blockchain allows users to add records directly into the ledger, which makes the entire process more efficient and simple. Companies are now also able to use the general blockchain ledger for auditing instead of extracting data from different sources.
Benefits of Blockchain Implementation in Fintech
Blockchain uses protocols, mutualised norms, and shared procedures that all act as a single source of growth for all users within the network. Blockchain technology also offers faster processing that has been shown to optimize client experience while increasing data integrity.
Blockchain technology is well-recognised for its increased safety and data protection. That is why the use of this technology in FinTech has made it easier to build secure applications that are specially developed to be impenetrable to malevolent parties and outsiders, which makes it nearly impossible to hack the code.
Blockchain provides the best capabilities for data privacy within a variety of software stack layers, allowing the network of organizations to share data only when it is needed. Increasing transparency and openness, blockchain also guarantees privacy and secrecy.
Blockchain used in FinTech facilitates the development and execution of smart contracts, therefore automating business logic in a deterministic and tamper-proof way to boost programmability and efficiency of the code.
Blockchain is made up of hybrid and private networks that are developed expressly to support millions of transactions per second with high speed and efficiency. That is because it facilitates the integration of public and private transformation, allowing organizations a large amount of resilience and global reach.
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6 Blockchain Challenges in FinTech
Now you know how blockchain can benefit the FinTech industry, let’s explore what changes you may face below:
1. Cost of Initiation, Implementation, and Maintenance
The cost of implementing blockchain into FinTech is high. That is because it requires large input regarding the software and hardware needed for its launch. Since small organizations and startups usually don’t operate with large investments, it could be a costly problem for them at the very beginning. Alongside costs for initial implementation, blockchain for finance will also take a high cost that not every business considers.
2. Data Modification
Implementation of blockchain into FinTech may also cause data modification issues. The banking industry makes regular changes to its data, especially involving a transaction. Since blockchain experienced issues with constant modifications, it could become a problem and not a solution for the company. The data entry process is time-consuming. Given the fact that the finance sector operates with numerous transactions on a daily basis, such a long process may cause delays in transactions.
3. Literacy Requirements
Being complex and new, blockchain technology in banking requires skills, knowledge and computer literacy. Therefore, illiterate employees will not be able to make a proper recording in the system. As a result, companies have to hire experienced teams with blockchain and FinTech development services, which can also be costly. In addition, finding the right specialists could also be a problem, as more and more businesses require blockchain skills. An alternative option is to educate exciting employees, but this option takes the same time and does not always provide the expected results.
4.Duration of the System
Since operations of the blockchain system are cryptic, there is no guarantee or certainty of how long the recorded transactions may last. However, most financial transactions need information related to all previous transactions and their future impact. So when the duration of this data is uncertain, this system may become ineffective in the financial space.
5. Blockchain Regulations
It is worth noting that blockchain in banking has lots of regulations. These regulations will become a challenge for any inexperienced company. That is because teams lacking knowledge are usually afraid of a list of regulations blockchain requires to provide a safe and efficient user experience.
6. Dependability on Computers and Power
As you might have already guessed, blockchain implementation will require computers. Therefore, problems affecting the computers, like power and viruses, will highly affect the blockchain system. Computers also need a lot of power. And this dependence on computers and power makes the systems unreliable if something happens with the software or power shortages.
The Future of Blockchain in the FinTech Industry
If banks are still considering blockchain implementation, they won’t be able to ignore its impact for long. Since blockchain in financial services offers a new level of transparency and security, significantly reduces complexity and abandons redundant elements of current infrastructure, the future of blockchain in FinTech is obviously bright. Since financial organizations have a deep understanding of end user’s needs, they are just at the right time to embrace blockchain’s benefits and get its new transactional paradigm and cost-saving potential.
How Can We Help?
Being on a list of top Miami & Dubai blockchain development companies in 2022, we offer a vast range of blockchain development services, including implementation, smart contract development, audit of exciting code as well as maintenance. Our team is made up of experts in the blockchain and FinTech industries, allowing clients to get quality software powered by the latest technologies.
The FinTech industry experienced changes. Customers want increased efficiency, transparency, simpler transactions and enhanced security. And blockchain offers all these benefits combined in one network that can be implemented in finance apps. Even though the process of blockchain implementation is tricky for most companies, knowing challenges may help you prevent them. If you have an idea or want to explore more about blockchain implementation, book a call with our experts!
What is Blockchain in FinTech?
Blockchain is used in FinTech as a great way to safely send money to another person without going through a bank or financial services provider.
What is the Difference Between FinTech and Blockchain?
Fintech is an umbrella term for financial sector tech, while blockchain is a technology
How Blockchain Technology Revolutionizes Fintech?
Blockchain in FinTech allows organizations to boost security, efficiency and transparency of transactions, among many other benefits.