Blockchain in Fintech
It took nearly a decade for blockchain in fintech to mature into a respected asset. Now, the technology — and the entire sub-industry it has created — is ready to back up its trademark mystique with data-backed analysis and concrete results.
A market state of sky-highs and downhills
2021 was historic for tech investment — and blockchain-focused fintech startups saw greater interest than many subsectors. With a massive boom in cryptocurrency values, the NFT craze, and increased interest in Web3, blockchain in fintech had a banner year in 2021.
Then, came winter. In early 2022, cryptocurrencies plummeted in value. Despite a powerful Q1 ’22, the bleak financial reality became clear in the second quarter, courtesy of a multi-year blockchain investment nosedive.
In other words, a blessing in disguise. The considerably smaller VC investment pool available, while undesirable from a certain perspective, had the side effect of reining in digital currency (and, by extension, blockchain) investments down to a more linear trajectory. With the fintech market's hype cycle now laser-focused on generative AI, blockchain could finally move towards a mature investment environment, prioritizing due diligence and serious endeavors versus the previous Wild West scattershot approach that enabled so many of its cautionary tales.
Reasons to adopt and benefits to reap
Blockchain’s reputation as an abstract concept is routinely challenged by fintech companies who experience its tangible rewards. For them, blockchain simplifies rather than complicates things.
Or, more accurately, it automates operational processes via smart contracts — advanced algorithms triggered by pre-agreed-upon conditions — to make certain intermediaries redundant and budgets more efficient.
Blockchain’s appeal to fintech also includes improved security. For financial transactions, it’s well-known for minimizing delays and costs by enabling direct peer-to-peer transactions and real-time settlements across borders. Furthermore, in data management, it offers superior traceability and accountability, courtesy of its tamper-proof records that ensure data integrity to protect against fraud, ultimately building customer confidence.
Increased process efficiency
- Reduced friction in cross-system transactions
- Fewer intermediaries for streamlined, cost-efficient operations
- Decentralized structure facilitates partner interoperability
Robust data management
- Immutable ledger-like features that ensure data integrity
- Renowned capability to attest data authenticity and provenance
- Unique identity verification methods to match actions to their actors
Enhanced transparency and security
- Independent data verification builds stakeholders’ trust
- Tamper-proof systems that reduce the risk of fraudulent activities
- Auditable nature that facilitates regulatory compliance
Popular use cases for blockchain in fintech
Blockchain’s most well-known use case, crypto, has been an investment option since the early 2010s. But it’s only within the last few years that cryptocurrencies have managed to inch their way from niched obscurity to a measure of mainstream legitimacy within digital finance. During this period, fintech companies explored the technology and came up with new applications for old problems in the industry.
Andrew Haines explains: “As a decentralized ledger for transactions, blockchain technology could mean much more than faster payment processing,” referring to blockchain’s infrastructure efficiency to provide faster processing speeds. “By significantly lowering the cost of every transaction, blockchain eliminates the need for the multiple intermediaries that traditional finance requires.”
All in all, integration of blockchain tech reduces the need for finance’s traditional go-betweens like banks and clearing houses. Which, in turn, drives many old-school financial institutions to develop fintech through blockchain solutions to stay competitive, the most common of which include:
New digital payment infrastructure
Blockchain enables secure, real-time, and cross-border transactions without the need for intermediaries. It can reduce transaction costs and enhance security, making it particularly beneficial for remittances, micropayments, and international money transfers.
Investment management
By facilitating fractional ownership and tokenization of assets, blockchain allows individuals to invest in traditionally illiquid assets like real estate or art. This expands investment opportunities and makes it easier to buy, sell, and trade assets while providing increased transparency in ownership.
Invoice and billing supervision
Blockchain can automate and simplify invoice and billing processes, once again courtesy of smart contracts. They can be programmed to trigger payments on predefined conditions, reducing disputes and delays, for a perk particularly useful for supply chain financing and trade finance.
Supply chain logistics
Blockchain enhances transparency and traceability in supply chains. It allows participants to track the journey of goods and their respective handlers from source to destination, ensuring authenticity, reducing fraud, and streamlining processes like provenance checks and recalls.
Digital identity management
Blockchain-based app users may enjoy extra control over their data through secure and verifiable ways to store personal information. They can then selectively share it with authorized parties, improving privacy and reducing the risks associated with centralized identity databases.
Credit score assessment
The smart contracts intrinsic to blockchain tech can automate loan agreements, repayment schedules, and interest payments. Additionally, blockchain-based credit scoring models can use a wider range of data to assess creditworthiness, potentially improving access to credit for underserved demographics.
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Core blockchain technologies
Fintech startups and enterprises routinely tap into the following to craft their blockchain solutions:
Solidity is the programming language used to write smart contracts in the Ethereum blockchain. Designed specifically for this purpose, Solidity is a mainstay technology when developing decentralized applications (DApps) in fintech. It enables the creation of smart contracts, token issuance, and other dedicated services within Ethereum.
Lisk is a blockchain application platform designed to facilitate communication between different blockchains. Created as open-source and on the extremely popular JavaScript, Lisk bridges the paths among blockchains made in different programming languages, providing tools and libraries for fintech developers to build interoperable DApps.
Created by financial services provider R3, Corda is a distributed ledger technology (DLT) platform made exclusively with fintech in mind. Because of this, Corda prioritizes privacy and security, with embedded regulatory compliance features and Java-based smart contracts that made it popular with banking enterprises such as HSBC and J.P. Morgan.
A decentralized organization itself, Hyperledger is a global collaborative effort to create enterprise-level blockchain technology and help accelerate its adoption. The Hyperledger umbrella contains many widespread solutions such as Fabric (to create blockchain-based products) and Sawtooth (for secure enterprise blockchains).
Blockchain implementation challenges and solutions
Due to the irreversible nature of its transactions and the potential for vulnerabilities in smart contracts, implementing blockchain tech poses several challenges. As a new technology, customers and governments are still warming up to its benefits (and struggling to regulate it adequately), but solutions are coming fast. Some are already here.
Security
Safety remains a critical concern in blockchain implementations. Despite the technology’s inherent security, vulnerabilities can arise from poorly designed smart contracts, private key management, and cyberattacks.
To address this, fintech companies must prioritize thorough code audits and security assessments of their smart contracts, leaving no space for doubts on quality. Implementing robust access controls, multi-signature authentication, and hardware wallets can enhance the protection of private keys. Regular cybersecurity training for employees is also crucial to prevent social engineering attacks.
Regulatory legislation
As blockchain becomes ever more popular, its decentralized and cross-border nature clashes with existing financial regulations, forcing the regulatory landscape of multiple governments around the world to catch up quickly.
Fintech companies need to collaborate with regulatory bodies to ensure compliance while advocating for sensible regulations that foster innovation. Regulatory sandboxes, where companies can test new technologies under regulatory supervision, can provide a space for experimentation while maintaining compliance.
Employee skill gap
The complex nature of blockchain, a relatively recent technology in high demand, can lead to a shortage of skilled professionals who understand its intricacies.
Fintech enterprises can tackle this by investing in training and education programs for their employees, especially by collaborating with universities and institutions to offer blockchain-focused courses that help bridge the skills gap. Additionally, hiring experts or partnering with specialized blockchain consulting firms can provide the necessary expertise for successful implementation.
Blockchain interoperability
The lack of standardized protocols and formats can hinder communication and interoperability among different blockchain networks. This can create silos that limit the full potential of the technology.
Fintech companies can explore emerging standards like cross-chain protocols and interoperability frameworks. They should also carefully select blockchain platforms that prioritize interoperability, allowing for the seamless exchange of assets and data across different networks.
Environmental, Social, and Governance (ESG)
One of the earliest and longest-running criticisms of blockchain technology is its environmental cost: namely, the enormous amount of energy required to create the encryption needed for blockchain functionality. In response, some fintechs have begun offering what’s known as green finance, or investments in environmentally viable ventures to incentivize sustainable corporate conduct, a counterbalance to blockchain’s impact on the planet.
With major banks investing heavily in cryptocurrency, the focus on ensuring financial viability that is also environmentally sustainable has brought green finance into the spotlight. This leads to new blockchain innovations that consider sustainability an investment opportunity, as well as solutions that independently track metrics related to ESG goals, such as a corporation’s carbon footprint.
Blockchain expertise on demand
Consulting
Our group of specialists is prepared to offer extensive guidance and consulting solutions for your project, concentrating on its technical elements. We can aid with precise project prerequisites and incorporate key cutting-edge blockchain technologies into your fintech application.
- Business analysis and research
- System requirements specifications
- Tech stack selection
Full-cycle blockchain app development
We have the capacity to enhance your existing development workforce using our proficient experts or construct a fresh team to provide complete support for your project. Our experts are prepared to manage assignments spanning from minor modifications to extensive development, whether it encompasses the incorporation of a blockchain element into an already existing application or software, or the creation of a platform from scratch.
- Custom blockchain-based apps, software, platforms, and marketplaces
- Smart contract development
- DeFi development
- Integration services
- Maintenance and support
Roadmapping your blockchain integration
We’re ready and experienced in providing support at every step of blockchain integration. No matter what phase of the project cycle you’re at, whether that’s just starting the planning, QA testing, or post-launch optimization, our blockchain experts make transparency and communication the top priority from start to finish throughout the process.
Discovery
Our consultants connect with you and learn the ins and outs of your specific approach, your needs, and your overall goals for the project. From there, we establish the strongest options to best leverage blockchain technologies tailored to your specific financial operation.
Architecture and design
We design scalable architecture that’s easy to maintain and update, as well as creating a positive user experience.
Blockchain development
Our expert engineers build blockchain applications that improve operations, productivity, security, and compliance by leveraging the most innovative solutions possible through years of first-hand blockchain development experience.
Third-party software integration
Our engineers are familiar with and sync with reputable third-party providers to ensure that the integration process is smooth, simple, and reliable.
Solution testing
Our QA team uses tried-and-true manual and automated testing techniques to identify system vulnerabilities and areas for improvement, ensuring a more effective, reliable system and improving end-user experience across devices.
Post-launch refinement
We’ll keep advancing your goals even post-release. Through app usage and user feedback data, we establish improvement and optimization plans to update your solution so it keeps exceeding expectations.
We care about compliance
Fintech apps of every kind depend on solid compliance and regulatory practices to be successful, blockchain ones included.
At Vention, our teams understand blockchain’s capacity to revolutionize compliance tracking and assurance as a proven part of its value to all types of financial operations. As experts in software security, we go the extra mile to ensure your blockchain-fueled fintech app is always up-to-date with the latest safety standards, regulations, and compliance certifications.
Why build your blockchain fintech app with Vention
Top-tier application development company
- Dedicated Fintech Center of Excellence
- Full-cycle fintech development teams sync across time zones
- 70% of our app developers are senior-level and team leads
Exceptional flexibility
- CVs within 48 hours
- 2 weeks from contact to kickoff
- Zero operational overhead
A proven track record
- 500+ startups and businesses served to date
- 20+ years of experience
- PayPal, ClassPass, and SeatGeek are among our top clients
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