In recent years, Fintechs have burst onto the financial scene by disrupting financial transactions. Through their innovative and nimble use of technology, fintechs sped up processing times that use to take days or weeks.
Now fintechs are upping their game by integrating blockchain technology. In fact, a PWC survey of the financial services sector and fintech showed that almost 77% of the financial services industry plan to adopt blockchain in some way by 2020, as reported by Forbes.
But why blockchain? Blockchain offers two main benefits — transparency and cost efficiencies. Some transactions can involve several steps and players. By utilizing blockchain, all players will know in real-time how far along a process is and who is currently handling it. Because there is a complete immutable audit of the transaction, paperwork and associated cost can be decreased.
This article looks at three areas of fintech that are integrating into the blockchain: Banks, startups and regtech.
Banks On The Blockchain
Banks are often slow movers when it comes to adopting new technologies. This isn’t because they lack ambition. It is due to the heavily regulated environment banks operate within and the requirement to provide robust security.
Two banks have stepped into the blockchain space with a transaction totaling 25 million euros of securities. Credit Suisse and ING transferred ownership of the securities using the HQLAX Corda-based collateral lending application, which is a blockchain-based platform.
“The success of this first live transaction speaks to the potential for blockchain technology to help improve collateral fluidity by creating a more efficient, transparent, and cost effective marketplace for liquidity transfers,” Romain Dumas, Head of Rates Repo and Collateral Optimisation at Credit Suisse Securities (Europe) Limited, told Silicon UK.
“This transaction proves the progress we are making towards deploying Distributed Ledger Technology for the benefit of our clients and society by making the financial industry more efficient and more resilient,” Ivar Wiersma, Head of Wholesale Banking innovation at ING, also told Silicon UK.
Fintech Startups Use of Blockchain
Several fintechs are utilizing blockchain in a big way. One such company is veem.com. Veem allows companies to send and receive money across borders with unusually low fees. Traditionally, wiring money internationally is very expensive and can take days. International wire transfers cost far more than domestic transfers.
In fact, you can send a box of cash to India quicker and cheaper than it cost to wire it.
Of course don’t do this since it’s illegal in many countries.
Veem makes money on the foreign currency exchange rate spread. Additionally, there is a $20 fee if the receiver in a foreign country opts to receive funds in USD. This fee is still lower than even a domestic wire transfer.
Blockchain (yes — this is also the name of a company) is another startup that is more heavily integrated into blockchain than most fintechs. It’s a platform (blockchain technology) that allows analyzing company blockchains, buying and selling of digital assets, development of platforms and also provides wallets for storage of crypto assets.
Will Regulations Slowdown Blockchain Adoption?
Regulatory developments within the blockchain space are more around cryptocurrencies, which wouldn’t exist without the blockchain. With a large number of cryptocurrency exchanges being hacked and ICO scams, countries are scrambling to figure out how best to regulate the space without stifling its innovation.
ICOs are starting to become more transparent about what they will do with raised funds. In fact, many investors are demanding such information as a minimum baseline before they hand over any cash. It is now common practice for ICOs to implement KYC and AML.
KYC is an acronym for know your customer. In the U.S., depending if the token being issued is a security or utility token (two terms still under debate), investors may be required to meet accredited investor status. This means investors having $1 million in net worth, excluding their home, or have earned $200k in the last two years. It is on the ICO to verify this information. Companies such as kyc.legal and ico.kyc3.com help with KYC verifications.
AML stands for anti-money laundering. ICOs must also very that their investors aren’t a potential for money laundering or even terrorist. There are companies available to help with AML compliance, ico.kyc3.com being one of them.
Additionally, in the United States, the S.E.C. is taking a more in-depth look at ICOs. Several have already been subpoenaed, even though the S.E.C. has only issued vague guidelines as to what constitutes security vs. utility token.
Coinfirm is a startup that offers AML and blockchain transaction analysis..
“We bridge the world of financial services with that of blockchain and crypto. Coinfirm is a full auditing service; exactly as you’d find on offer for any financial product or service. A client can upload their blockchain, and we can check the provenance of every transaction. We provide our clients with complete, comprehensive information relating to all their transactions. If it’s no-to-low risk, a transaction goes straight through; if it’s high-risk, we press pause and alert the client. Anything that falls in the grey area is individually assessed by our teams, and a report is produced. Essentially, we want to bring bank grade compliance to cryptocurrency transactions,“ Pawel Kuskowski, co-founder and CEO of Coinfirm, said in an interview with Forbes.
Blockchain allows fintechs to take their innovative financial technologies and apply them to a transparent and easily audited platform, which are two characteristics that are highly prized in the financial services industry.