May 25, 2023

Securing Fintech the Blockchain Way—Why, Where, and How It is Done!

By Professor Krishnamurthy Bindumadhavan, Professor, BITS Pilani, WILP

For some time now, the Financial Services industry has been experiencing a dramatic transformation that is driven by various innovative technologies, such as Artificial Intelligence (AI), and the Internet of Things (IoT). This transformation driven by innovative technologies is referred to as FinTech and it is radically transforming the design and delivery of financial products and services across the globe. Among several technologies, Blockchain is certainly one that is quite popular and deemed promising too from a FinTech standpoint.

So, what is Blockchain and where can it be leveraged?

Blockchain can be thought of as a decentralised and highly secure ledger, wherein a record of all relevant transactions can be maintained across a peer-to-peer network. By leveraging Blockchain technology, each and every participant can confirm the relevant transactions, without the need for a central verifying authority. Blockchain has many applications in the Banking and Financial Services Industry (BFSI), such as cryptocurrencies, payment processing, trade finance, and insurance.

Blockchain for newer models of credit that are digital, cost-effective, efficient, and reliable

Almost 70% of financial services and Fintech companies are anticipated to develop embedded finance products and services by 2023. Blockchain is helping bankers around the globe to re-engineer the entire process to not only make it more cost-effective, efficient, and reliable but also to design newer models of credit and thereby fuel further growth in international business. The traditional trade finance process is paper-intensive and manual in nature with multiple processing steps. Blockchain is enabling banks to radically streamline and transform the trade finance process.

In the reengineered process, banks leverage Blockchain technology to make the entire process paperless and digital. It enables them to share documents in real-time and in a reliable manner (without errors), digitally sign documents, and automate payments from importers to exporters. Thus, Blockchain is revolutionising the trade finance industry by making it more cost-effective, efficient, transparent, and reliable.

The development of Web 3.0, which aims to build a more user-centric, open, and decentralised internet, where users have more control over their data and online interactions, is made possible by the integration of AI, Machine Learning, and Blockchain technologies. Decentralised finance and Blockchain implementation in India will ultimately depend on a number of variables, such as regulatory clarity, technology innovation, and user adoption. With the rise of the internet and later social media, which fundamentally altered the way we live today, Blockchain represents the next technological revolution. Considering all these factors, it is not surprising that Blockchain is expected to contribute 10% of the global GDP by 2025.

In creating digital public infrastructure (DPI), now is a good time to investigate the innovative potential of new decentralised technologies, such as Blockchain. Immutability, auditability, and distributed verifiability are three of blockchain’s distinctive properties that encourage more transparency and accountability and can assist in reducing the incidence of fraud, lower costs, and therefore open up novel efficiencies.

Blockchain is the underlying technology for Cryptocurrencies

Blockchain is also the underlying technology for Cryptocurrencies, such as Bitcoin, which can act as a medium of exchange, not unlike the US Dollar or the Indian rupee. Cryptocurrencies enable people across the globe to send and receive payments in real time, without the huge transaction fees that banks charge. Cryptocurrencies are essentially digital currencies, which leverage Blockchain technology, algorithms, and cryptographic techniques, to facilitate the creation of monetary units and the smooth transfer of funds, without the involvement of a central bank.

Having said that, many central banks are also climbing onto the cryptocurrency bandwagon. In our country, the Reserve Bank of India (RBI) is coming out with the Digital Rupee, a Central Bank Digital Currency (CBDC), which is based on Blockchain distributed ledger technology. The Digital Rupee is a tokenised and digitised version of the paper currency, and will also feature a unique identifier.

How can academia and professionals collaborate with industry for success in the FinTech landscape?

Academic institutions should continuously align their curriculum to address the needs of the industry and the evolving developments in the FinTech landscape. This will enable working professionals and students to gain the right skillsets for success in the FinTech industry. So, specialised MBA or certificate programs, which not only include courses on Finance, Accounting, Human Resource Management, Operations Management, and Marketing Management, but also on FinTech, Block Chain and its Applications, will help working professionals and learners to thrive and succeed in rapidly growing FinTech domain.