In order to invent a new fintech operating system to replace the old, slow traditional banking process, it’s critical to build compliance and the ability to identify a business entity into the system – in essence: to create a “universal business identity” that proves who the founders are to enable the delivery of trust and affordable financial services to Mexico and Latin America.
The ideal tech platform to build this gold standard of universal fintech identity is blockchain. Similar to how we use Google, Facebook, or Twitter as a federated identity to validate who we are and what content and services we have access to, there’s an emerging opportunity to create a universal business identity to reinvent how Latin American SMBs operate and thrive in 2021.
This concept of a universal business identity will create fluidity between businesses, foster confidence, and reduce fraud because it will validate that entities are legitimate and authorized to do business before any transactions take place.
Blockchain is the missing link to a new universal identity system
By using blockchain as the platform to create a universal business identity that can create fast, secure verifications and safe transactions to enable emerging markets to rise as new economic powerhouses, business owners will always have full control of their information and the flexibility to choose what information is private vs. public.
This type of innovation promises to be very transformational for a country like Mexico that does not have enough speed in understanding, underwriting, and servicing SMBs through the traditional banking system. It opens up a world of possibilities for new, innovative service offerings to be built from a blockchain-powered universal business identity. By creating an identity that is banking grade, SMBs finally have access to financial services in Mexico and other LatAm countries; which, in turn will add significant jobs and add to the GDP.
A universal identity system promises to build trust and speed up business
Today, SMBs face significant hurdles in validating identification, ownership, and authority to transact with traditional banks in Mexico and other Latin American countries. These challenges are further exacerbated by a traditional banking industry that is slow, inflexible, and costly to adapt to the swiftly changing tides of fintech innovation.
Fintech innovators have a unique and timely opportunity to reimagine banking with a security-first approach to product development. Unlike traditional banks, neobanks have the size and flexibility to more easily leverage emerging technologies and bridge the gap between making banking easier for SMBs and ensuring the protection of their financial information.
The old paradigm of traditional banks creates hardships: for example, SMBs in Mexico might receive deposits with no information regarding the sender, making it difficult to maintain accurate accounting. Taxes already take an average of 337 hours of business time for SMB owners annually in Mexico. By tapping blockchain, neobanks can redirect wasted energy to expedite reconciliation instead. And, SMBs would not have to rely on the information provided by another business owner or do time-consuming due diligence to ensure their interactions are legitimate and safe if a universal business identity system was introduced to the market.
A federated identity system using blockchain to validate who we are and what content and services we have access to, SMBs in Latin America could safely govern transactional authentications and engender systematic trust. Incorporating key elements of each SMB’s identity and structure into the blockchain validation engine will provide a trusted, third-party guarantor of the SMB’s legitimacy to other business associates.
The universal business identity system will know the roles within the company, who has authorization to transact, and at which level of authority. This eliminates any potential missteps between all involved parties, keeping the workings of the business clear from possible obstacles and liability. Potential business dealings will thus be free from the “burden of due diligence,” speeding up the transactions among businesses and allowing owners to have the autonomy to focus on priorities that are accretive to business.
By making these innovative and transformative changes to serve SMBs, blockchain technology will play a pivotal role in defining the standards of security and trust for the fintech industry, allowing neobanks to simultaneously offer transparency of transactions and privacy of financial information at the discretion of the individual user.
Four key benefits blockchain technology would provide
There are four key advantages of using blockchain in banking: decentralized trust, enhanced security, decreased costs, and increased efficiency.
- Every transaction is tracked and verified without the need for a third party. Blockchain creates an infrastructure that shares control amongst all parts of the chain, essentially using a vast network of peer nodes to provide checks and balances to avoid fraudulent changes to its ledger.
- Peer nodes, which are secure digital copies of the ledger that are held in individual computers to cross-reference data in the ledger and detect any errors, must reach a majority consensus of any requested change to be approved and admitted into the updated ledger. Once data is recorded in a block, similar to a page of the ledger, it cannot be changed retroactively, making it hard to hack. Having multiple points of validation, distributed across several computers, and storing data in a format that is impossible to change, ensures the security of each individual user of the blockchain.
- Without the need for validation intermediaries or costly computer systems, clients can rely on the security of the blockchain technology. These savings may be passed directly on to users or held to improve overall profitability.
- Blockchain improves efficiency by using a single ledger, saved in a format that minimizes the risk of tampering and duplication. It further increases the processing of transactions by allowing validation to occur automatically and quickly, without the potential delays associated with needing input from a central source.
The fluidity of inter-business exchanges will be accelerated by removing the doubt or hesitancy that comes from not knowing a business’s background. Blockchain technology has security built into its DNA. It is built from the ground up to protect against unauthorized changes, with a decentralized group of individual points of validation, committed to the client’s privacy and protection. Using a fintech OS based on the security that blockchain provides will ensure a global evolution that will facilitate business interaction that is reliable and devoid of uncertainty.
Freeing SMBs from uncertainty will grease the wheels of entrepreneurship and help rebuild the Latin American economy more rapidly because small businesses are allowed to reach further than they have before, with confidence and support from a new fintech OS built on blockchain.