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Emerging Technologies Article

The Future of Financial Services Using Blockchain Technology Infrastructures

Photo of businessman holding bitcoin coin

Understanding the difference between fintech and financial innovation; 

Financial innovation can be interpreted as common developments happening gradually in the financial services industry. This includes contemporary markets, technologies, instruments, or institutions. Fintech refers to a distinct area of financial innovation where the centre of interest is transformative technology.

Fintech is short for financial technology. A great example of fintech is a P2P lending platform called Zopa, which gives people access to loans directly from connected devices. On the other hand, financial innovations may sound like the same thing, however they are different devices and institutions which enable people to use financial services. Existing examples of financial innovations include debit cards, ATMs and traditional banking services.

Fintech overview infographic

Traditional banks have been around for centuries. Fintech is bringing banking into the modern age, however it now threatens to outgrow banking completely. They could become superior to banks because they are able to curate big data and offer flexibility in managing money in ways that banks would need to be redesigned from the ground up to match. People of the 21st century want more from their banks, however their banks are not set up to offer such services.

How is fintech disrupting financial services:

One way fintech is disrupting financial services is through blockchain technology. Bitcoin was the first distributed ledger network to implement blockchain technology as a store of value. Blockchains are now touted as the future infrastructure of the financial industry, along with dozens of other industries.

Not all blockchain networks are decentralised, in fact, most are merely distributed, without exception to Bitcoin. There exists a considerable amount of domination with a few nodes in the form of mining cartels.

Data on bitcoin mining cartels 2017 infographic chart

(Source: BTC.com)

Complete decentralisation means having no governing authority, powerful dictator, or group of humans controlling the network. With no governing authority, this means anyone with a mobile device and an internet connection could send or receive stores of value on a global scale with minimal disruptions or surprises within such an ecosystem.

Banks are aware of how disruptive blockchain technology is and are currently devising ways to implement it into their operations. Albeit, it is unlikely they will ever provide decentralised distributed ledgers, only centralised ones. While traditional fiat transfers are expensive and slow, going through at least four intermediaries per transaction, blockchain technology eliminates the need for merchants, acquirers, networks and issuers, which makes transactions faster, safer and cheaper. Non-banking financial companies (NBFCs) using blockchain technology are emerging faster than banks are adapting.

Major players in payment processing infographic, including merchants, acquirers, networks and issuers.

(Source: Seeking Alpha)

Emerging blockchain remittance services:

The remittance industry is one sector adopting blockchain technology. Millions of people around the world rely on services such as Western Union or MoneyGram to send money across borders, however fintech startups such as BitPesa and TransferWise are offering easier solutions. With these applications, people who do not have easy access to remittance-service branches are able to send or receive money without having to leave their homes or pay hefty fees.

Blockchain assets such as Bitcoin or Ethereum vs traditional assets in finance

(Source: Cyber Fund)

Another area of the financial services industry getting disrupted by blockchain technology is traditional credit card and ATM services. At the time of writing there are numerous platforms such as Bitwala and CryptoPay providing VISA & Maestro debit cards, where people could withdraw fiat currencies including the US Dollar and Great British Pound or make payments using cryptocurrencies such as Bitcoin or Ethereum. CryptoPay also plans to create Bitcoin bank accounts with unique IBANs and integrate cryptocurrencies into existing stock, bond, commodity, and currency trading platforms as a form of exchange.

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