The term Fintech refers to a company that operates within the financial technology sector. Two popular fintech companies you may already have heard of include Paypal & Stripe. And although both of these companies operate within the online payments sector, there are many other types of fintech companies out there.
And what about DeFi?
Well, DeFi is short for decentralised finance, an umbrella term used to describe financial applications that harness the power of blockchains, smart contracts and/or cryptocurrencies, with a view to decentralising, or removing the middlemen, from processes and transactions.
Let's look at 4 sectors within the fintech space that DeFi is already disrupting:
Online exchanges help users trade crypto and fiat currencies, whereas decentralised exchanges, such as MDEX and Uniswap, connect users directly with one another so that they can trade cryptocurrencies without trusting an intermediary with their funds.
Many blockchain-based projects focused on transparency and trust are already being developed within the insurance sector, hoping that one day false claims and the high rate of fraudulent activity within the insurance industry may, in time, become a thing of the past. Black for example is a blockchain-enabled digital insurance startup, connecting insurance brokers directly with capital, enabling them to launch their own virtual insurance companies. Blacks' USP, therefore, is that they remove third parties, in this case, insurance companies, from the value chain.
Payments and Money Transfers
The lack of alternative options for consumers has allowed traditional financial institutions to charge what some might call “excessive fees” in the facilitation of payments and money transfers. Furthermore, in some cases, such as that of international transfers, the delay in receiving payments can also be a hindrance, impacting one of the most fundamental pillars of business i.e. cashflow. By mitigating the need for transactions to be routed via central authorities such as banks blockchain and more specifically cryptocurrencies are looking to solve these issues.
Instilling trust via use of smart contracts and decentralisation, blockchain-based loan companies are replacing banks, whilst at the same time, greatly reducing loan processing times. Instead of paying excessive processing fees and waiting up to 30 days for loan approval, individuals and small businesses can now apply and receive approval for blockchain-based loans in a matter of minutes. BlockFi for example is a lending platform that uses cryptocurrency as collateral. Need to repair your home or buy a car? Borrowers can receive low-interest cash loans by leveraging cryptocurrencies such as Ether, Litecoin, Bitcoin, and PAX Gold.