Why Fintech Start-ups Should Integrate the Blockchain Technology
The global fintech worth is estimated at $4.7 trillion, with over 12 thousand fintech startups open globally. Due to its innovative networks, software, and hardware, fintech has captured millions of clients globally. However, any fintech startup faces serious challenges that the already existing financial systems have already faced, thus having a competitive advantage.
How can fintech startups take advantage of blockchain technology that has been in existence for quite some time? Here are six reasons why every fintech startup should consider integrating blockchain technology into its system.
Security Issues and Lack Of Privacy
Digital financial management systems have their security challenges. Traditional banking systems are prone to criminal attacks and robberies. However, these institutions invest highly in security to ensure the clients’ monies are safe.
One of the most significant issues in fintech systems is the number of insecurity cases. Fintech startups may not be aware of possible bugs in their systems. Therefore, their systems can easily be hacked and lead to losses.
Fintech startups can take advantage of the security features that blockchain technology has to offer. Anonymity features and the trustless nature of blockchain technology help ensure that all users on the network remain safe, as does the information on their transactions. Other blockchains even have specialized security and privacy protocols that would make them ideal for any fintech startups.
Large Data Analysis Problems
Due to the inculcation of many different technological and economic sectors, fintech may run out of data solutions. There are big databases, including social media and commercial databases, which may require more extensive processing facilities that startups may not have. The storage of digital assets, contracts, and other documents, including social media details, could be a struggle for fintech companies that are only getting started.
Therefore, to acquire the full benefits of data, they need high technologies to assure them trading solutions. Blockchains are complicated data systems that can keep records for decades. Since blockchains deal with many different sectors, including financial markets and payments, they have proven technologically equipped for humongous tasks. If a startup fintech adopts blockchains, it will have dependable technological solutions that meet their enormous data analysis needs.
One of the most significant challenges for any company is regulatory problems. All fintech startups need to follow government guidelines and also comply with any legalities. The regulatory environment is dynamic and financial institutions in charge are continuously making changes. Therefore, startups need to ensure they are always in compliance with the latest directives.
Adopting blockchain technology will help ensure that the startups are compliant with regulatory directives. Any information they feed to the blockchain will be permanent, helping regulators track their past transactions easily. This feature will help fast-track any illegal channels, including cyber criminals if need be.
Better Payment Systems
Payment systems are integral for any fintech startup. Companies want to ensure that they have a fast and easy way for their clients to pay for products and services, and for the companies to receive the payment.
Thanks to blockchain technology, fintech startups can set up payment systems that are fast and reliable for domestic and global payments. Using blockchain will also ensure they incur cheaper transaction costs than a payment system that requires an intermediary. Blockchain will help reduce cross border commission charges, and in some cases, the startups may incur no transaction costs at all.
Contracts are an integral part of any startup company. Executing contracts in startups is complicated, primarily due to the lack of proper contract mechanisms. Signatures and trust are among the items lacking in executing contracts.
However, taking advantage of smart contracts offered by the Ethereum network can help ease the problem. Card exchange, currency payment, international and domestic money transfers, and other merchant services are made possible using smart contracts.
Research by the datavisor fraud index report, 2018 showed that the number of fraudulent accounts has increased by 50% since the end of 2017. From the statistics, it’s evident that proper identification and registration of online transaction accounts are crucial.
On the other hand, blockchain has implemented high technology that ensures proper digital identification for all clients. Blockchain allows its customers to do the following:
- Personal identification information management
- Sign in with no passwords
- Make their investments
- Share information on private networks
- Use of digital signatures on contracts
- Manage personal finances
Fintech startups that deal with sensitive documents from their clients may need higher security protocols for the accounts. Permissioned blockchains carry features like identity verification and role-based permissions, which help in additional security features. Using blockchain technology for security will ensure that documents remain secure and only access their data through digital identification.
Fintech startups often face so many challenges in security and ensuring that everything is set up correctly. If these companies don’t have the right mechanisms in play, they can easily get overwhelmed by the challenges and go under, before making any significant profits.
Blockchain technology has proved to be an asset in various industries. Therefore, the adoption of blockchain in fintech startups is undoubtedly advantageous to these companies. Blockchain technology comes with unique features that help improve the companies’ functionality and security, which boosts the startups’ overall performance.