FinTech and Blockchain: How are they related? | Investera | Investment Portfolio Management Platform

FinTech and Blockchain: How are they related?

24March, 2020

Whenever a conversation is brought up about FinTech, or we read an article related to FinTech, it’s often accompanied with the word “Blockchain.” So how are these two concepts correlated, and what do they represent in our current times?

Firstly, let’s define what FinTech is. FinTech is a short term for financial technology, which is the use of finance in technology. The term FinTech has recently been booming across various sectors when, in fact, the field has been around for much longer than people were aware. As a matter of fact, FinTech has been around since people first started using ATMs and credit cards. However, the actual term “Fintech” became known after the financial crisis of 2007-2008, where various venture capitalist firms made huge investments into fintech businesses, which served as an alternative to the failed financial institutions [1].

Any company that provides financial services through software or other technology that can include anything from mobile payment apps to cryptocurrency is a company that uses FinTech in its operations. Generally, any company that uses the internet, mobile devices, software technology, or cloud services to perform or connect with financial services, is described as a FinTech company. Various FinTech products and services are designed to connect consumers’ finances with technology for ease of use, although the term is also applied to business-to-business (B2B) technologies as well [2].

On the other hand, the term Blockchain became known to the public during the emergence of cryptocurrencies and Bitcoin back in 2008. Blockchain, in simple terms, is an ever-growing list of records that run on a network where its system architecture is no different from a database. The records are called blocks cryptographically linked to one another forming a chain, hence the name Blockchain [3].

So, how are FinTech and Blockchain related? Blockchain is considered as the backbone of FinTech. Blockchain in Fintech aims to provide banking with a more seamless and effective experience, from cost reductions (anticipated savings of around $15-20 million by 2022) to uncheck unconditional bureaucracies in the traditional banking sector. This serves well for both the bank and the clients. However, the most significant effect blockchain will have on the finance sector is reducing fraud and cyber-attacks in the financial world, significantly. This technology will assist in blocking data breaking and other comparable fraudulent operations, which enables fintech businesses to share or transfer safe and unaltered information through a decentralized network [3].

In conclusion, this world is rapidly advancing and the use of digital transformation services and evolution technology became a necessity for any company to survive or even for an individual to perform a simple day-to-day activity. This includes the financial industry as well. Therefore, FinTech and Blockchain are now two of the essential elements that are dominating the financial world and expected to grow exponentially.

Farah Al Aina
Fintech Solution Advisor at Investera

 

  • [1] Hepburn, George. “What Is Fintech? Uses and Examples in 2020.” Quora.com, Feb 2016, http://quora.com/Who-coined-the-term-fintech
  • [2] Sraders, Ann. “Who coined the term FinTech.” thestreet.com, June 2016, https://www.thestreet.com/technology/what-is-fintech-14885154
  • [3] Shah, Prasanth. “How fintech is revolutionising with blockchain technology.” yourstory.com, Oct 2019, https://yourstory.com/2019/10/fintech-blockchain-technology