Fintech vs Blockchain: Key Differences [2024] (2024)

The technological world has transformed how we Live Today, like how we manage our finances and conduct all transactions. Some of the significant innovations that one should pay attention to in the finance industry are blockchain and fintech. Undoubtedly, both have changed how people interact with money; we often use it interchangeably.

Overview of Fintech

Fintech is a short form for financial technology; it means how people use technology to improve and streamline financial services. It includes several applications like mobile banking, digital wallets, and online lending. Fintech aims to make the most of the technological advancements to make financial services accessible and efficient.

The fintech companies use data-driven approaches and user-friendly interfaces to offer customized financial services. For example, mobile banking apps allow one to manage accounts, make transactions, and keep a tab of expenses. This gives unparalleled convenience and accessibility. Digital wallets also allow contactless payments and peer-to-peer transfers, making transactions pretty effective.

Another element of fintech should know about is its ability to democratize financial services. The Fintech companies use technology to break down the barriers to entry and offer unique solutions to the Underserved population. For example, one can access credit with online lending platforms, which is impossible with typical lending channels because no credit history or collateral is available. At the same time, robot advisors offer low investment options, making wealth management services available even with a low budget.

Fintech has wholly disrupted the typical financial institutions, and now these institutions have no option but to adapt and innovate. This has also led to collaborations between financial banking institutions and fintech companies, creating a relationship that benefits consumers with great financial solutions.

Overview of Blockchain

Blockchain, in simple terms, is decentralized and a distributed Ledger technology that allows to have secure and immutable record keeping of digital transformation. It relies on cryptographic techniques to secure transactions while minimizing the need for intermediaries. One of the best parts of blockchain is that it is entirely decentral. Unlike typical systems where a central authority manages the transactions, blockchain distributes the transactional information across the network, known as computer nodes.

Each node verifies and records all transactions, creating a consensus among all the participants. The best part about using blockchain is that it offers optimum security. It relies on the latest cryptographic techniques to secure transactions that make it tamper-proof and even immutable once transaction is recorded on the blockchain; it cannot be changed, which provides a high level of transparency and trust. This makes blockchain suitable, as it requires secure and transparent record keeping, like supply chain management and digital identity verification.

Blockchain also enables self-executing smart contracts within the predefined conditions encoded in blockchain. Smart contracts will help eliminate intermediaries, automate the process, and provide transparency and efficiency. For example, in the insurance industry, smart contracts can generally trigger a claim payment when some conditions are met, reducing the need for manual processing and delays.

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The Significant Difference Between Fintech and Blockchain

1. Scope of Application

Fintech is an extended term that includes different applications in the financial industry like mobile banking, digital wallets, online lending, and wealth management fintech focuses on using technology to improve and streamline financial services, making them completely accessible and customer-centric.

Fintech solutions are generally centralized, having a central authority that manages transactions. Blockchain is entirely decentralized, having transactions recorded across the computer network and verified through a mechanism.

Related: Is Fintech a Stressful Industry

2. Decentralization

Decentralization is one of the significant differences between fintech and blockchain. Fintech solutions are centralized majorly, meaning a central authority manages transactions and accounts. The central authority here acts like an intermediary, and it helps in keeping a tab of all transactions.

Blockchain is decentralized simultaneously, and the transactions on the blockchain are verified and recorded across computer networks, and there is no central authority here.

Related: How to Move from Banking to Fintech

3. Transparency and Security

While fintech and blockchain focus on improving transparency and security in financial transactions, they achieve it only through various means. The fintech solutions rely on established security measures like encryption and user authentication that help in protecting transactions and user information.

Blockchain achieves transparency and security through its decentralized nature, and this is all done through its decentralized nature and cryptographic techniques.

4. Intermediaries

Fintech solutions rely on intermediaries like banks, payment processors, or other financial institutions to facilitate transactions and manage user accounts. These intermediaries play a vital role in the fintech ecosystem providing all the services like transaction processing and compiling. At the same time, blockchain helps eliminate all intermediaries because all transactions are peer-to-peer. There is no need for any central authority or intermediary to verify all the process transactions.

How Do Blockchain and Fintech Impact Our Daily Life?

Fintech has made it very easy for us to get financial services. Digital wallets also make it easy to go for contactless payment. Blockchain technology has also revolutionized industries that go beyond finance. It helps in improving supply chain management by providing excellent transparency and traceability. There is a minimum chance of fraud and counterfeit products here.