Bitcoin became the world’s first cryptocurrency in 2008. Then, it was valued at approximately $0.00099 per Bitcoin. Now, Bitcoin is one of the most popular currencies in the world, with more than 200 million global users.
Backed by blockchain technology, cryptocurrencies have evolved beyond a basic store of value. Now, they’re multi-purpose, fiat-agnostic commodities that are useful in a wide range of financial technology (fintech) operations.
In this guide, we’ll cover the benefits of using cryptocurrencies in the fintech sector and several use cases that could be profitable for financial companies.
How Is Cryptocurrency Impacting Fintech?
Cryptocurrencies represent a change in the status quo of global banking. These digital currencies are the exact opposite of their fiat counterparts. Crypto is completely decentralized, secure, and useful for swift, borderless transactions.
Therefore, fintech companies are becoming more attracted to cryptocurrencies because:
- The foundation of a cryptocurrency is blockchain technology. A blockchain is a ledger that can’t be altered or manipulated. As a result, crypto transactions are secure and tamper-proof. Blockchain technology helps fintech companies lower their risk of fraud.
- Cryptocurrency transactions are much faster than fiat transactions. While it takes several business days for international wire transfers to process, cryptocurrency transfers can be completed within a few hours.
- Central bank transfers and transactions go through processing by multiple intermediaries. This can ultimately increase process times and fees. Cryptocurrency transactions don’t require intermediaries and are much cheaper than those with traditional financial systems.
All these reasons considered, cryptocurrencies provide financial companies with a faster and more economical means of engaging in global markets.
Benefits of Cryptocurrency in Fintech
Financial companies that offer crypto services can tap into a thriving worldwide market. Here are some of the advantages of embracing cryptocurrency in fintech.
Lower Transaction Costs
Traditional bank transfers are more expensive than crypto transfers because they involve a wide array of intermediaries from investment banks to stock exchanges. The role of these clearinghouses is to ensure the swift completion of a transaction.
The problem is that involving multiple intermediaries can increase transaction fees, which are passed on to the customer. Cryptocurrencies don’t involve intermediaries. All transactions are made peer-to-peer (P2P).
As a result, financial companies can guarantee lower transaction costs to customers by embracing the use of cryptocurrencies.
Increased Transaction Speed
The lack of intermediaries in crypto transactions doesn’t just make them cheaper. Crypto transactions are also faster than fiat payments, especially in regard to international transactions.
This benefit could be very appealing to financial companies serving a global audience. For example, it would take anywhere from one to five business days for a banking customer to send money from one country to another.
If this person used a cryptocurrency like bitcoin (BTC) or Ethereum (ETH), they would complete their entire transaction within a few hours.
Accessibility
Cryptocurrencies provide a much lower barrier to entry into a financial market than banks and credit unions. Unlike banking customers, crypto users don’t have to undergo a lengthy application process.
They can set up a crypto wallet and begin buying cryptocurrencies almost immediately after Know Your Customer (KYC) verification. The widespread financial accessibility of cryptocurrencies makes it possible to support underbanked and unbanked populations.
Therefore, cryptocurrencies can help financial companies contribute to global economic inclusion.
Transparency and Security
Cryptocurrencies are encrypted using distributed ledger technology. This means that all transactions are securely recorded on a public ledger. No one can alter this ledger, especially since it’s not owned by a single person or entity.
As such, the presence of cryptocurrencies can deter financial crimes such as bank fraud and money laundering. This is essential for maintaining compliance with regulatory standards and building consumer trust in the crypto market.
The Key Use Cases of Cryptocurrency in Fintech
Cryptocurrencies offer several attractive benefits to financial companies. If you’re interested in incorporating crypto into your business model, here are some ways to get started:
1. Payments and Money Transfers
Financial companies can utilize cryptocurrencies to streamline payments and money transfers. Because of their superior speed and lower costs, crypto payment systems are much more viable for financial companies to offer their customers.
PayPal was one of the first major financial companies to allow its customers to receive, pay, and transfer funds with cryptocurrencies in the U.S. Other fintech companies can follow PayPal’s example to broaden their customer base and increase accessibility to worldwide audiences.
2. Remittances
A remittance refers to a sum of money sent to a person in another country. Remittances are popular among immigrants who regularly send money back to friends and relatives in their home countries.
In fact, remittances are a significant source of income for people in developing countries. Because remittances are international transfers, they can take longer to process. In addition, customers will have to pay high transaction fees to issue them.
To attract more customers and stimulate international economies, financial companies can begin utilizing cryptocurrencies to make remittance transactions more efficient and cost-effective.
This is exactly what El Salvador is doing with the creation of the world’s first national crypto wallet, the Chivo Wallet. A major component of El Salvador’s GDP is remittances, but 70% of the population doesn’t have a bank account.
As a result, they have to pay high transaction fees. With the help of AlphaPoint, El Salvador’s Chivo Wallet allows citizens to receive remittances faster and with fewer fees.
3. Tokenization of Assets
Another use case of crypto and blockchain in the banking sector is the tokenization of real-world assets (RWAs). This refers to the process of “digitizing” traditional assets such as real estate and art.
By tokenizing these assets, financial customers can offer them to a global audience and increase worldwide financial accessibility. For example, investors in Denmark can purchase individual shares of tokenized real estate in the U.S.
Also, investors can tokenize artwork into non-fungible tokens (NFTs) to attract hefty market prices. As a matter of fact, The Merge is the world’s most expensive NFT, sold for $91 million within just two hours of its release.
4. Investment and Trading
With thousands of cryptocurrencies available, more crypto exchanges are starting up to meet this immense worldwide demand.
These crypto exchanges can serve as a viable alternative to stock markets and traditional investment avenues. An investor may create an account with a crypto exchange to diversify their portfolio and take advantage of the sale of modern crypto assets.
5. Decentralized Finance (DeFi)
Cryptocurrencies aren’t only relevant in buying, selling, and trading transactions. Financial companies can also utilize them in decentralized financial services, such as borrowing and lending.
Specifically, a financial company can offer crypto lending services to its customers, secured by a private blockchain network. With a smart contract in place, customers can immediately execute lending contracts, helping these companies save time and money.
In addition, financial companies can offer crypto-staking rewards to their customers for holding specific currencies. This way, they can allow their customers to earn interest from their holdings and incentivize them to continue participating in the crypto market.
6. Capital Raising and Funding
New cryptocurrencies are entering the market every year. The process of raising capital for cryptocurrency projects is called an initial coin offering (ICO), or a security token offering (STO) for digital securities.
Financial companies can spur the growth of the crypto market by promoting ICOs and STOs to their customers. Private companies can even provide direct funding and capital-raising opportunities for select crypto projects.
7. Cross-Border E-Commerce
Global e-commerce companies can benefit from accepting cryptocurrencies to facilitate efficient and cost-effective transactions, especially across borders.
Particularly, merchants can avoid chargebacks by offering crypto payments as an alternative to debit and credit cards.
Since no one owns cryptocurrencies, they are impossible to charge back. This means that merchants can save thousands of dollars by eliminating chargebacks from their records. Since cryptocurrencies are incredibly secure, customers can feel peace of mind knowing they’re less at risk of fraud than they would be using fiat currency.
8. Identity Management and Verification
Blockchain technology has launched the creation of digital identities. A user can create a digital identity (DID) and store it on a secure blockchain.
This means that financial companies can adequately protect customer data privacy through secure verification protocols. Blockchain identity management can reduce instances of fraud and improve investor confidence in the crypto market.
How AlphaPoint Is Shaping the Future of Cryptocurrency in Fintech
Cryptocurrency has become much more than a digital token. These currencies represent a massive shift in global commerce toward decentralization, financial accessibility, and transactional efficiency.
As a result, fintech companies stand to benefit from incorporating cryptocurrencies into their business models. If you’re looking to expand your company into the crypto ecosystem, you don’t have to build your own technology from scratch.
AlphaPoint provides white-label crypto services aimed at helping businesses, financial institutions, and governments harness the power of crypto functionality. Our exchange software, wallet solutions, and asset digitization can help businesses expand their services into the crypto market, providing more value for customers without employing costly in-house resources.
Check out our complete suite of solutions to see how we’ve helped over 150 customers worldwide launch and manage their crypto offerings.
