Applying Blockchain Technology to Financial Services to Benefit Africa and the World. A Glance at the Role of Fintech Companies

Blockchain technology has taken the world by storm. Cryptocurrency, Decentralized Finance (DeFi), and Decentralized Apps (Dapps) have revolutionized how businesses operate. Emerging markets like Africa have extensively leveraged the capabilities of blockchain, and there’s still a lot of potential for fintech companies to unlock.

Though blockchain finds applications in many domains, financial services have been the most beneficial.  In this blog, we explore the applications of blockchain in the financial services arena and further how Africa reaps the benefits. Finally, we look at what Fintech companies are capable of achieving in this regard.

Let’s get started.

Applications of Blockchain in Financial Services

Blockchain offers a plethora of use cases, particularly in the financial services sector. Some of these are discussed below:

Cross-Border Payments

People often need to send money to their distant relatives or friends. In other cases, businesses have to reach out to geographically-separated customers for payments. And these cross-border transactions are often slow and expensive, as the money passes through various banks with multiple approvals, and that is time-consuming. As a result, sometimes, it could take days or even weeks for the money to reach the final intended recipient. However, blockchain, through its decentralization and distributed ledger technology (DLT) makes the process instant, secure and transparent.

Credit Management

For availing of a loan facility, banks, and financial institutions validate the credit score of the individual. The lack of mobility of the credit ratings causes issues in the credit management system. In other words, the current credit score is not valid in another country. That said, the need arises for a universal credit score. This is where blockchain technology comes into the picture. As blockchain offers a centralized database accessible to all credit management authorities, they can verify the creditworthiness of the individual anywhere. And smart contracts ensure that the personal details of the individual are not disclosed.

Government Expenses

Governments globally are digitizing their systems to enhance transparency, that in turn would instill trust and confidence in citizens. Technological advances have made it possible to incorporate transparency in public financing systems. Through these facilities, people can get a clear picture of the funds spent on various government projects, say a bridge construction. This would help minimize corruptive practices and foster the efficiency of the system.

Lending Platforms

Without a decentralized platform, people need an intermediary or third party to establish trust for borrowing and lending. However, blockchain obviates the need for such intermediaries and enables the parties involved to directly communicate on the terms and conditions regulated by smart contracts. The smart contract works on predetermined conditions and automatically executes when the specific conditions are met. Borrowers and lenders can negotiate on conditions to be included in smart contracts

Fund Investment

At present, investing in funds is a highly time-consuming and expensive process as it involves manual processes requiring access to multiple databases. With blockchain in finance, the personal, legal, and other required information of individuals can be stored on a centralized platform. Fund investment companies can be using smart contracts to directly access and verify the user information from these records. Thus, blockchain offers greater transparency and better efficiency and reduces the possibility of fraud and errors.

How do These Blockchain Applications in Financial Services Benefit Africa?

The remarkable blockchain technology that powers cryptocurrencies like Bitcoin have helped aid Africa in many ways to empower it digitally and boost its economy. The immense use of various cryptocurrencies through different apps in Africa has helped many industries reap huge profits. In fact, Africa today stands at the top of the list of rich crypto countries globally.

From the technically skilled professionals to the daily wage earners, almost everyone in the country has embraced blockchain technology. As a result, blockchain has surpassed many local mobile and e-payment platforms in Africa. It is needless to mention that the surging prices of Bitcoin and other cryptocurrencies have completely transformed the financial landscape of Africa.

Well, let’s take a look at some of the benefits that blockchain in financial services offers to this emerging economy:

  • Africa has long suffered economic exploitation and serious circumstances that resulted in hyperinflation and increased dependency on banks and financial authorities. Blockchain in financial services has relieved the users of the stringent bank rules and has paved the way for Africa toward a digitized economy.
  • Thousands of laborers in Africa work on daily or weekly wages. Their payment modes are old-fashioned, taking a long time to process and deducting several charges from their payment by the government. Blockchain made it possible to send and receive payments digitally and trade fiat currencies or any other currency anytime they need.
  • As blockchain uses a peer-to-peer network, it reduces transaction costs and taxes which arise when banks are involved. There is no more the need for people to be associated with a bank or share their personal details.
  • The vast unbanked population of Africa prefers the decentralized blockchain platform due to low transaction costs, non-requirement of being tagged to a bank, and easy paperwork. In addition, the cross-border payments and transactions carried out under the blockchain network have led to the wider adoption of digital currency as compared to the traditional mode of payment.

Role of Fintech Companies

Fintech companies can help Africa stabilize and grow its economy using blockchain technology in many ways. Some of these are discussed in the below section:

  • One example could be Fintech companies offering cryptocurrency loans to farmers in Africa. This supports dual objectives – to help farmers maximize their output through financing and track the provenance of their commodity on the blockchain platforms.
  • Fintech companies may develop blockchain interfaces for processing and improving consumer and business payments.
  • Fintech firms could help finance the setting up accessibility to the internet and smartphones in these countries.
  • Fintech companies could help improve transaction processes through blockchain technology by reducing the transaction fees, and helping the people to open bank accounts and conduct payments, thereby fostering financial inclusion.

Closing Thoughts

Blockchain technology, especially in financial services, has a lot of applications. Africa has been a forerunner in harnessing the potential of blockchain finance and looks forward to continuing in that direction. Fintech companies can offer many innovative solutions, some of which have been included here.