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Fintech Blockchain Prediction: 2023 – Global Adoption Exceeds 70%

Blockchain is one of the most innovative and useful technologies that has been successful in accelerated cryptocurrency adoption. Today, the fintech marketplace amplifies blockchain use to numerous existing and new financial services. It’s completely disrupting traditional banking/financial services everywhere. Traditional banks, credit unions, and financial institutions must adopt fintech innovation within existing service extensions, platforms, and/or replacements with fintech services to survive over the next five years. C-suite teams will apply blockchain solutions for mainstream adoption by over 70% in 2023.

According to Deloitte’s 2020 Global Blockchain Survey, 55% of executive leaders/practitioners stated that blockchain is a top-five strategic priority.

By year-end 2023, the use of blockchain in fintech globally should accelerate over 70% in critical use cases such as digital currency, services, and smart contracts.

In short, fintech blockchain adoption is no longer just about testing, watching, and waiting. It’s about proactively taking action and applying the technology right now!

Business and central government fintech’s leading efforts are blockchain services—CEO priority technology for 2021-2023.

Here’s what C-suite teams need to know about five fintech blockchain adoption opportunities.

Blockchain moves mainstream

Blockchain technology records transactions in an efficient, verifiable, and permanent way. Newer use cases include bonds, stocks, trades, cash-repo-swaps, credit cards, and national currencies. With blockchain, these assets become more secure, universally visible, undeniable, and unalterable.

In 2021-2022, fintech blockchain use will accelerate the speed and security of financial services. It will also drive greater value for businesses and consumers by reducing costs, financial risks, fraud, and execution/ops errors.

Through 2023, blockchain will expand the scope of services offered by government leaders, big tech, fintech platforms, startups, and/or venture capitalists. More central banks—over ten—will issue national digital currencies.

Blockchain creates five fintech disruption opportunities.

Many fintech startups, venture capitalists, big tech, businesses, and vendors are targeting blockchain in the following disruptive areas:

  1. Digital currencies, credit cards, and ATMs: Asset-backed coins-new norm
  2. Payments and/or settlements in less than a second
  3. Credit/lending: Increased automation for growth/consolidation/M&A
  4. Smart contracts: Rapid adoption
  5. Identity/Fraud Management: Personal data safety

That’s not all. Blockchain will create disruptions for most government central bank systems-new digital currencies, and regulations too.

Today’s blockchain platform offerings for open API development and services give enterprises a distributed ledger technology (DLT). These platforms use an open-source, scalable, secure, and trusted infrastructure for fintech apps. These new fintech services can be augmented, integrated, or replaced in traditional banks/financial services.

Traditional banking solutions should apply fintech services, open-APIs, partner-platforms, and private/hybrid cloud services for survival going forward!

Digital currencies, credit cards, and ATMs: New norms

Digital currency usage accelerates globally. Digital currencies are on the rise, driven by two factors – the COVID-19 crisis and high consumer demand for a cashless society. Digital transactions are easy, fast, inexpensive, secure, and can be enabled almost anytime, anywhere.

Cryptocurrency, crypto-tokens, and blockchain are associated with a reduction in two essential costs: verifying the transaction attributes that can be recorded on a blockchain and the cost of networking, researched by MIT’s Christian Catalini.

Many global economies are going cashless with digital apps like Venmo (owned by PayPal), WeChat (China), and M-Pesa (Africa). As these apps facilitate more and more payments, they’re also raising central bank concerns about consumer protection, cybersecurity, data privacy, liquidity, and/or operational risks.

Blockchain can help by providing private and decentralized digital currencies. Each currency creates value through supply, demand, and utility. The big three coins—Bitcoin, Ethereum, and Ripple—had a market value of roughly USD 340 billion as of November 23, 2020, according to The Motley Fool.

Private institutions, such as JP Morgan Coin-stablecoin using blockchain, can create their own digital currencies. A single central authority could regulate these currencies. In this case, it expects US central bank regulations soon.

Central Banks afoot.

Blockchain can also help apply to create a central bank digital currency (CBDC) – the digital stablecoin form of a country’s fiat currency. Each central bank could issue electronic tokens backed by the national government’s full faith and credit. Key stablecoin pilots such as the USD Coin (USDC), Paxos Standard (PAX-USD), and the STASIS EURS (Euro) combine the CBDC benefits of blockchain with the fiat currency’s reputation, security, and stability with liquidity.

By 2023, over ten countries should have CBDCs in place. China is leading in CBDC adoption with its digital currency electronic payment (DCEP). Simultaneously, the US-Federal Reserve and the EU-ECB are likely to have their own national digital currencies ready by 2023.

Credit cards and ATMs support digital currency now!

Major payment cards and ATMs are preparing to accept and use digital currency. For example, Visa will allow Circle Internet Financial to process USDC payments by connecting its global payments network of 60 plus million merchants to the USDC on the Ethereum blockchain. New Visa credit cards, likely to be issued in early 2021, will allow businesses to send and receive USDC payments directly. Visa has already onboarded 25 cryptocurrency wallet providers to pilot the USDC integration, according to Forbes.

Meanwhile, LibertyX has 5,000 bitcoin ATMs and tie-ups with 20,000 retail stores—including CVS and 7-Eleven—where customers can now buy bitcoins with cash and debit cards, respectively.

Payments and/or settlements in less than a second

The growing adoption of digital wallets and mobile payments will continue to drive innovations in fintech. Blockchain payment innovations have multiple components: mobile payments, contactless payments, mobile wallets, smart contracts, and identity management. Use cases may also require AI/ML.

By CY 2020, mobile wallet usage projects over one billion shoppers will make digital/mobile wallet payments. Mobile wallets continue to replace physical wallets using credit or reward cards. Digital payment transactions blow past USD 6.68 billion in 2020, growing by 22.1% year-after-year, according to Statista.

Traditionally, global financial payments take up to three days to process and settle. They also tend to be costly and have limited platforms such as ACH and SWIFT. In response, IBM has launched a blockchain-based global payments network, World Wire, that uses the Stellar Lumens platform to enable clearing and settlements in near real-time and at a fraction of the cost of traditional banking.

During 2021-2023, fintech payments based on blockchain will continue to grow and become mainstream in less than three years.

For example, JPMorgan now uses blockchain on its Onyx platform. The company is conducting intraday repurchase agreements totaling billions of dollars through its custom blockchain, reports Bloomberg. Repo cash is now available in real-time during the trading day. These advances help persuade other progressive banks such as Goldman Sachs to join the new digital market for a competitive advantage.

Credit/leanding: Increased automation-growth/M&A

This year will see increased interest in both consumer and business-to-business credit and financing. The C2C, B2C, and B2B spaces will witness greater fintech adoption in the form of blockchain-based apps. Banks and credit unions can already streamline and enable near-real-time credit approval with fintech apps such as Plaid. Now, large established payment providers and networks entering the card installments space are further validating the trend towards credit and financing.

Smart contracts: Rapid adoption

Smart contracts reinvent business contracts using blockchain software. They eliminate the need for escrow services and people-intensive paperwork. Unlike traditional contracts with unplanned leftover residual assets that require managers and lawyers, a smart contract executes automatically to close out and settle.

Today, smart contracts using blockchain are in large banks such as JPMorgan. The company enables transactions in the $2.3 trillion repo market using smart contracts on an Ethereum-based blockchain that allows cash and US Treasuries transfers to be paid out instantaneously.

Smart contracts open the door for financial institutions to adopt blockchain technology. They are robust in trust and execution and can extend across national borders.

Notably, the popularity of fintech continues to drive consolidation in the financial services space, with fintech leaders being acquired by larger institutions to add new capabilities to existing solutions. SMEs must integrate open-APIs, fintech services, and partner-platforms or be in many M&A efforts.

Identity/Fraud management: Personal data safety

Digital identity management and emerging personal data controls are critical for fintech. Identity management continues to be one of the most significant financial services challenges. Banks, credit unions, and other financial institutions lose billions of dollars each year to fraud. Blockchain could act as an antidote. Through decentralized finance mechanisms, it can help firms protect against financial crime.

Blockchain transaction data moves into its DLT. Once executed, the data is encrypted, recorded, and locked in the app, making it far too complex to change or erase. Therefore, the data is well-protected and trusted. This DLT makes cross-border payments more secure and much less risky.

Blockchain encryptions can help ensure safety from hackers if applied correctly.

Here is a good personal privacy use case: Ernst & Young’s Nightfall using GitHub makes transactions on public blockchains secure and private by replacing sensitive business data and information with a type of cryptography called a Zero-Knowledge Proof. Note, Nightfall requires a full security code review before deployment.

Today, digitization has simplified access to personally identifiable information (PII), but it also leads to data theft and misuse. There are growing concerns about user data protection. Emerging blockchain-based technologies can help through decentralized identity solutions that replace identifiers such as usernames with IDs that are self-owned and independent. They use DLT to protect personal identity and to enable secure, private transactions. Examples include blockchain services offered by the likes of AWS with fraud.net and IBM.

Looking ahead

With blockchain, fintech companies are changing the face of financial transactions around the world. They are transforming standard financial transactions into fully transparent, secure, and efficient processes/procedures, thus strengthening trust and credibility. Customers will continue to adopt these revolutionary mobile-based technologies quickly if effective regulations and security standards are in place. Banking-as-a-Service is the next wave. Fintech blockchain adoption drives new CEO opportunities in supply-chain-management and IoT, including 5G.

More predictions

References and More Advice:

Business Insider Intelligence, “Future of Banking Technology?”. 2020.

Brynjolfsson, Erik. McAfee, Andrew. “Machine, Platform, Crowd: Harnessing Our Digital Future.” New York: W.W. Norton & Company, Inc. 2017.

Capgemini. “Top Trends in Retail Banking”. 2020.

Cointelegraph.com. Klumov, Gregory. “The Top 5 Trends Defining Crypto in Late 2020”. 2020.

European Central Bank. Lagarde, Christine, President, “The Future of Money – Innovating while retaining trust”. Paris, France. 2020.

Fintech News. “10 Use Cases of Blockchain Technology in Banking”. 2020.

Fintech News Singapore. “Standard Chartered Selects AWS’ Cloud Services in 60 Markets”. 2020.

Forbes.com. Shevlin, Ron. “Digital Platforms Are Eating Banking?”. 2019.

Harvard Kennedy School: Belfer Center for Science and International Affairs. Kumar, Aditi. Ney, Jeremy. Lee, Eve. Ji, Victor. “National Digital Currencies: The Future of Money?”. 2020.

Kane, Gerald. Phillips, Anh Nguyen. Copulsky, Jonathan R. Andrus, Garth R. “The Technology Fallacy: How People Are the Real Key to Digital Transformation.” Cambridge, MA: The MIT Press. 2019.

MIT IDE Research Brief. Klein, Paula. “Digital Currency Efforts Ramp Up”. 2020.

MIT IDE Research Brief.  Catalini, Christian. “How Blockchain Technology Will Impact The Digital Economy”. 2017.

MIT Solve Brief, Hanna, Hala. “Why CrowdSolve? The Powerful Impact of Open Innovation and Engineered Partnerships”. 2018.

The Analyst Syndicate. Magrassi, Paolo. “In Blockchain We Trust? “. 2019.

Copyright @ 2021, STEVE HAWALD CEO CIO ADVISORY LLC. DISCLAIMER: This article is entirely my opinion without financial payments. The peer review was by French Caldwell.  Member of The Analyst Syndicate.
Disclosure

The views and opinions in this analysis are my own and do not represent positions or opinions of The Analyst Syndicate. Read more on the Disclosure Policy.