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    • 77% of the financial services industry plans to adopt blockchain by 2020 – PWC
    • Eight of the ten global investment banks are looking at embracing the blockchain route – Accenture and McLagan
    • The growth of blockchain is expected to be upwards of $7 billion by 2022 – Jeff Koyen, 360 Blockchain

Before we get into the details of how blockchain is changing the FinTech space, let us try and understand what blockchain is and its relationship to FinTech.

Blockchain and Bitcoin were synonymous to begin with because blockchain was built for bitcoin. However, over time people started finding other use cases for blockchain. There has been a lot of traction in the blockchain space — be it proofs of concept, demonstrations or just PR exercises. Only when blockchain becomes commercially viable and when the implementation affects you and me, would it become ubiquitous and scale.

Inherent Advantages Of Blockchain

Blockchain has some inherent advantages that drive the industry’s interest, such as:

  • Disintermediation— it removes all the intermediaries in a transaction
  • Security— the immutable nature of blockchain makes it highly secure and it prevents fraudulent transactions
  • Ease of accessibility— readily available information across all the blockchain nodes makes it easy for people to access
  • Audit-ability— you can go down the block and trace any form of data rewrite

The flipside of it is that it is storage intensive, energy intensive with lot of POCs but very few actual commercial implementations.

Blockchain and FinTech

Blockchain in the FinTech industry is designed to make banking a seamless and efficient experience for both banks and customers alike. While blockchain promises to remedy inefficiencies in the back-office setups of most banks, it definitely is set to bring about substantial reduction in frauds and cyber attacks in the financial sector.

Fintech Use Cases

Financial inclusion — Blockchain can financially include the unbanked population by easing the back-office processes and making it accessible widely. For instance, M-Pesa tripled financial inclusion by simply allowing users to access finances via their mobiles between 2006 and 2013 in Kenya. M-Pesa is estimated to have lifted 850,000 people out of poverty, with up to 50% of Kenya’s GDP flowing through M-Pesa.

GST — There are input tax services that you have availed and there are output tax service that you have provided. In order for you to get credit, you will have to do all the matching and see whether the payments have been made and figure out what needs to be paid. This can be put on a blockchain and easily automated. This could help the system work seamlessly with more trust in the system.

Smart contracts — Blockchain will allow companies and individuals to agree and settle contracts and transactions very quickly and efficiently, and remove the need for intermediaries or central counterparties.

Private blockchain — financial services companies are finding that the private blockchain networks they’ve set up with a limited number of trusted counterparties can significantly reduce transaction costs.

Retail cards – First Data’s blockchain-based retail cards dramatically lowered costs per transaction and enhanced the security aspects. They were able to track the flow of currency within accounts without relying on external payment processors.

The Future

Blockchain is not a disruptive technology that can attack traditional business models with low-cost alternatives and dethrone the incumbents. It is a foundational technology that has great potential and the impact will be enormous though it would take decades for blockchain to have visible impacts in the way we operate and transact. However, blockchain is an important FinTech innovation. Blockchain brings in potential reduction in the cost of transactions and this means that its reach and potential impact is enormous.

Blockchain is probably the latest in the long line of FinTech innovations and could really be the final leap required to making the world a better place — fairer, inclusive and more prosperous — that would benefit us all.

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About the author

Anil Kumar, Co-founder & Director of Technology at Zuci Systems. Anil is an industry evangelist in Financial Services. With around 17 years of experience he has managed projects with Fortune 1000 companies and successfully implemented innovative technology for FinTech. He is a sought-after speaker at various software conferences in several countries and regularly contributes articles and white papers to business and software journals