Blockchain technology is poised to become an integral part of the global financial services industry, enabling distributed and secure computing systems that facilitate trustless transactions, decentralized finance (DeFi), faster payments, improved compliance, enhanced programmability, etc.

It can be a daunting change for players in the financial services sector who have relied on traditional models since the beginning of time. However, this immense transformation promises to open up numerous opportunities in providing new user cases incorporating embedded payments, remittances, and expanded investing capabilities with custody options. But what does this mean for you?

We hope to provide an insightful look into these emerging developments—many of which may soon necessitate revisiting existing operations or creating entirely new ones—and begin unraveling each layer about why Fintech leaders should pay attention to blockchain innovation.

Overview of Blockchain

Blockchain technology is revolutionizing the finance industry, empowering users to access financial services more democratically and equitably. The key innovations of Blockchain are transactions without intermediaries, distributed ledger technologies, smart contracts, and digital tokens.

This new technology has the potential to create greater efficiency and transparency in many processes, from easy digital identification to remittances to investment banking. In addition, it enables security through cryptographic algorithms and decentralized systems, making it virtually impossible for hackers to alter or control their data or records. And its decentralized nature also reduces individual risk by allowing users to choose their preferred level of privacy and anonymity while transacting securely — protecting personal data while maintaining low transaction costs. For this reason, blockchain technology has become an increasingly attractive option for financial service providers looking to bring cost savings and improved security levels into their operations.

From a Speculative bubble to Real Use Cases

Financial services firms can rely on Blockchain for mission-critical use cases going beyond a speculative bubble of NFTs and coins.

For example, here are a few use cases to consider:

• Embedded payments provide individuals a safe and secure avenue to buy or sell goods and services online.
• Remittances enable people to send money securely back home to relatives abroad
• Investing will allow users to participate without the middleman and associated fees of conventional investments
• Custody provides an immutable way to store value without losing potential gains from asset appreciation.

Challenges overcome.

Companies must overcome numerous challenges for Blockchain to move beyond short-term speculative bubbles and into a sustainable, real-world financial services ecosystem.

There are, of course, cost and transaction fees issues, which can prove prohibitively expensive at times. Furthermore, the threat of user fraud and crime targeting cryptocurrency transfers also serves as an obstacle. Additionally, something else that has been getting increasing attention is the environmental footprint associated with certain types of crypto mining, which proves challenging to reduce without impacting its overall security.

Next Steps

As the crypto and Blockchain world quickly evolves, financial services executives must stay ahead of the curve to leverage their full potential. They should focus on transitioning existing products and services to suit these emerging technologies. This means investing more resources into research and development to understand this new tech’s implications on various sectors such as payment processing, remittances, asset management, security deposits, and beyond. Furthermore, they need to create strategies that holistically approach how they can incorporate hybrid models of both traditional banking models combined with this new technology. Doing so requires understanding the overall landscape—monitoring trends and competitors and adjusting economic policies when needed while keeping customer needs at the forefront of decision-making. Finally, executives should remain agile and adaptive in their approaches to explore how blockchain-based products and services can maximize our society’s financial potential.

As we have seen, the application of blockchain technology to the financial services industry is broad. From embedded payments and cryptocurrency trading to remittances and transferring assets, Blockchain promises a future of global financial inclusion. At the same time, some challenges, such as cost, crime, fraud, and its environmental footprint, will remain a major roadblock to adoption. Financial services executives must consider these regulatory complexities while embracing the potential long-term benefits of this emerging technology. With smart contracts coupled with AI/ML-based analytics to monitor activity globally, organizations can benefit from improved security and usability and a wide range of new products and services available for their customers. Blockchain promises incredible innovation that can rapidly converge with mature technological frameworks like cloud computing to create an entirely new world of real-time opportunities within financial services that were not possible just a few decades ago.