FinTech is the emerging technology which has disrupted several traditional financial institutions such as banks, insurance, capital market or investment corporations etc. There is another rapidly growing technology called Blockchain, which is the part of FinTech industry as far as the financial activities are concerned, and it has a potential to leverage the FinTech revolution along with other technologies like Artificial Intelligence and Machine Learning. Here we will discuss the relationship between FinTech and Blockchain and impact of both on financial industry.
It is the term used to define the combination of technology and finance, also called Financial Technology, which aims to design and deliver financial services that will be more fast, efficient and user-friendly than the traditional ones, by using technologies like Big Data, Machine Learning, and Artificial Intelligence.
Blockchain is the decentralized distributed ledger that keeps the records of assets or transactions in blocks, and each block having the data to be stored, hash value which is the unique identifier of each block, and hash value of previous block that makes the whole complete chain of blocks, called blockchain.
The most popular application of blockchain is Bitcoin, which is a cryptocurrency or digital currency used as an alternative to traditional currencies like dollars or euros. The rapid growth of Bitcoin in recent years inspired several other startups to develop their own cryptocurrencies, and that is why there are now more than 1500 cryptocurrencies developed as of 2017.
RELATIONSHIP BETWEEN BOTH TECHNOLOGIES
The prime objective of FinTech technology is to compete with traditional financial methods in designing and delivering financial services, and providing customers the services that they want to use. It has already started impacting the main financial institutions such as banks, as a result banks are also making their systems digitalized and providing digital or online services to the consumers. This impact of FinTech in one way or another beneficial for banks’ consumers.
FinTech is also impacting other areas of finance such as lending, as there are several peer-to-peer lending platforms which provide loans to their customers with less time and requirements than banks. Insurers are using FinTech to enhance their experience of giving insurance to their customers in a more effective way. There are now Robo-Advisory financial services which provide financial advice to the people for asset management or investment etc.
Blockchain technology on the other hand, is the decentralized technology which removes the needs of middlemen or intermediary and it allows its users to control the system by being connected in peer-to-peer network, which then provides transparency into the system, as no person has to trust other in that system because each activity or transaction done by any person, is replicated to all other users synchronously, so the chances of fraudulent activities been reduced.
Blockchain is assumed to be essential in FinTech Revolution because decentralized and distributed nature of the blockchain can help developing fast and secure financial services. For example, Barclays Bank is investing in blockchain by developing their own payment service based on blockchain. There are several startups in FinTech which have included the blockchain in financial services they are providing.
FinTech is revolutionizing the way we transact business or perform financial activities, and blockchain is already the popular Fintech-based technology that runs virtual currencies like Bitcoin, but the use of blockchain is beyond the cryptocurrencies and FinTech, as the decentralized and distributed nature of blockchain can be effective in other areas such as agriculture, governance systems, and e-voting etc. Nevertheless, blockchain along with other technologies like artificial intelligence, machine learning can enhance the power of FinTech and take it to next levels in future.