A Digital Ledger: How To Transform Your Financial Product With It?

As of 2024 and most likely beyond, having a centralized ledger as your primary database and reporting solution is hardly effective. The fintech market is heading towards decentralization and a blockchain-based model of collaboration and asset exchange. And other industries don’t fall behind significantly. So, let’s pay some attention to an alternative solution — a decentralized ledger technology (DLT).

Let’s begin familiariation with DLT and its usefulness by looking at the stats. The DLT industry is predicted to reach $228.31 billion by 2028, registering a CAGR of 62.5% during the anticipated period. Considering that back in 2020, the market was capped at $4.7 billion only, the tendency towards digital ledger utilization is extremely solid.

In this post, you’ll discover what distributed ledger technology actually is from technical and business standpoints. Besides, you’ll explore scenarios in which virtual ledger implementation is a must. Additionally, you’ll discover how to implement a DLT and what challenges of distributed ledger you may face.

What Is a Distributed Ledger Technology (DLT) and How Does It Work?

Before channeling DLT to business needs, we need to have a firm understanding of this concept.

DLT (Digital Ledger Technology) is a decentralized digital database system where data is recorded, shared, and synchronized across multiple locations and participants.

Unlike traditional centralized databases managed by a single entity, DLT operates on a distributed network, ensuring that each participant has an identical copy of the ledger. DLT does not rely on a central authority to manage or verify transactions or the validity of data. Instead, it uses cryptographic techniques. The most well-known form of DLT is blockchain, of which, you definitely have heard.

You may be interested in additionally exploring the topic of blockchain and DLT in fintech in another blog post by DashDevs.

Well, let’s simplify it a bit. A distributed ledger can be viewed as a multi-purpose record-keeping system. We can compare it to a shared digital notebook. Everyone involved can write entries in this notebook, but once something is written, it can’t be erased or changed. This notebook is not kept in one place but is copied and shared among everyone in the group, so everyone always has the latest version.

You can see how distributed ledger tech is different from a centralized repository in the infographics below:

Distributed Ledger Parties and Types of Data Stored

Let me guess: you’re curious about what parties will potentially have simultaneous access to a digital ledger if it’s implemented in your business? Here you are:

• Primarily business
• Partners and collaborators
• Suppliers and service vendors
• Financial institutions
• DLT service providers
• Investors
• Employees
• Customers

Let’s make things clear, it’s you who decides what parties and what particular personal can make entries into your DLT. You can, for example, allow your contractors to send in bills, financial institutions to drop reports there, your employees to access particular data entries, and many more. Sounds good?

Now, you probably wonder, what types of data and reports a decentralized ledger bank typically stores. Well, here is a list of the most common ones:

• Transactional data
• Asset and ownership records
• Smart contracts
• Identity and credential data
• Audit trails and compliance escorts
• Supply chain data
• Legal and contractual documents

As can be seen, DLT covers and extensive scope of business data to be stored. Such data types are present across many industries, including finance, healthcare, insurance, high tech, manufacturing, etc.

Why Implement the Distributed Ledger Technology

Basically, any business, whether fintech or non-fintech, may consider implementing a DLT system instead of relying upon a centralized online or offline storage. Here are the scenarios that indicate a need for a bank ledger specifically:

• Potential security and transparency concerns. With a centralized system, security protection is completely ensured by a single party — you. Such a system is not cost-effective and definitely not easy to maintain robust. At the same time, decentralization offers an acceptable level of security by default. It also doesn’t inherit transparency issues attributed to a centralized system where a single entity handles all data and is a single point of failure. Since in modern fintech, security is a top 1 concern because of the high number of cybersecurity attack cases globally, the corresponding DLT advantage is more than valid.
• Handling multiple transactions. Well, this one is simple but applicable only to fintech. Multiple transactions across channels generate vast amounts of data to be stored and exchanged, for which you need a repository. Frankly speaking, transactions are not the only process you handle as a financial company. If you launch a white-label neobank, for example, by using Fintech Core by DashDevs, you have identity checks, currency exchange, and other procedures to handle. We’ll delve into them in the next section.
• Numerous intermediaries involved. An increase in the number of intermediaries means that more parties will have to exchange data with you. It necessitates having a complex access system and multi-level storage.
• Complex multi-party coordination. Especially in fintech, the operation of a single app or platform relies on a large number of integrations with external providers. Since a single business rarely orchestrates the coordination single-handedly, decentralization of the processes comes really in handy.
• Complex regulatory compliance. Both fintech and non-fintech businesses have to adhere to data protection standards, such as GDPR regulation. Decentralization enhances transparency, security, and immutability of data, ensuring that records are tamper-proof and traceable. So, with distributed ledger technology consensus, it’s easier to stay compliant.
• Multi-step processes with collaborative execution. Once again, centralized systems are not a perfect fit for most complex processes. When many parties contribute to a single process, they return it to a centralized storage numerous times. However, with a DLT, each party can contribute directly to a shared, decentralized ledger, reducing the need for repetitive data exchanges and minimizing the risk of errors.

Does any of the listed sound like your business situation? If so, don’t hesitate to read further.

How You Can Transform Your Fintech Product with A Distributed Ledger Technology

As stated previously, distributed ledgers can be a part of any company’s IT infrastructure. But apart from being a great choice for a reporting and storing solution, how is it helpful in fintech procedures?

Let’s take any fintech product, such as a neobank, e-wallet, budging app, trading app, etc. Here are the types of processes typically executed in such a business, where having a DLT is a must for a seamless operation:

#1 Payments

Here, distributed ledgers serve as a repository for the vast transaction data accessed by all participants involved, i.e., your business, your customers, and a financial institution. Without a digital ledger, you need a network of server-based databases, a complex access central system, and a lot of manual effort to ensure proper digital data exchange. It isn’t worth it, is it?

#2 Lending

Similar to payments, lending is a financial procedure that needs authorization, exchange of data, and multiple-party access to the same information. Add to it the need to validate extra data, like credit score, collateral, income and employment, etc. Basically, ledger technology consensus mechanisms are the only way to handle all things involved effectively and, in the best-case scenario, in real time.

#3 Identity verificationa

Verifying the identity of, for example, a customer looking for a loan involves researching their persona across internal and external databases available. Besides, you fintech partners may want to utilize your own database to double check their identity data. From any standpoint, you cant go without a ledger bank in that matter, as outcomes of poor identity verification system in place is standard non-compliance and increased fraud risks.

You may explore KYC considerations and how to avoid fraud in fintech app in another blog post by DashDevs.

#4 Trade finance

Well, blockchain, which was coined from the concept of DLT, is a totally trading-oriented decentralized system. So, it is no wonder that ledger banking is a perfect fit for any platform or app for asset exchange. In trading, the decentralized nature of ledger banks ensures great fraud protection, transparency, and the absence of governing party dependence.

#5 Foreign exchange

Cross border payments have several additional layers of complexity compared to regular ways to validate transactions. One of them is currency exchange, which necessitates having real-time knowledge of current exchange rates across international banks. Once again, processes with multiple steps and parties involved and sensitive information exchange is exactly where DLT is needed the most.

You may be additionally interested in exploring cross border payment methods and money exchange.

#6 Fundraising

Fundraising is grounded on the concepts of collaboration, exchange, and integration, which are part of the DLT’s nature. The very matter of fundraising is sensitive as well. Not only sensitive transaction data must be strictly protected here, but also individuals and organizations that donate money often prefer to stay anonymous. Fair anonymity is much easier to implement with a decentralized ledger compared to a centralized system where at the very least, administrators have access to some, if not all data for parties.

So, you have an idea of a fintech app or platform that’s expected to cover the processes listed above or similar ones, so you need a banking ledger. Or you just like the concept of digital ledger and want your non-fintech solution to have it integrated. What’s next? Well, now we’ve come to the discussion of developing an app or platform with a DLT.

Decentralized Ledger Technology Offering by DashDevs

Important note: As we know, lots of fintech products are not created from scratch, and companies behind them often are not even licensed banks. Such fintech solutions are rather customer-facing portals that connect customers with back-end banking infrastructure supported by an actual licensed financial institution

You can discover in depth how neobanks work in another blog post by DashDevs.

Alternatively, neobanking capabilities can be integrated into nearly any, both fintech and non-fintech apps and platforms in the same way.

However, to obtain a fintech solution with distributed ledgers, you need to integrate with a financial service provider that already has a DLT implemented or develop a DLT system yourself.

As an example of a complete fintech solution, DashDevs has to offer a modular, white-label product for the fast creation and launch of neobanks — Fintech Core. With it, we can rapidly implement banking, budgeting, trading, or other such functionality due to pre-integrated modules, i.e., features. On top of that, we offer a fully-fledged, custom DLT.

In essence, our Fintech Core includes the following:

1. Back-end integrations with providers of banking services, security mechanisms, and regulatory compliance mechanisms.
2. Front-end integrations and customer-facing interfaces.
3. Fully-fledged, custom distributed ledger.

Explore Fintech Core by DahsDevs

What’s the end offering? A complete fintech product with a customer-facing interface, an integrated distributed ledger, and any financial services support back-end by a licensed bank.

Key Challenges of Utilizing DLT in Fintech Products

DLT blockchain implementation is indeed a promising digital transformation opportunity. However, it does have several key considerations you need to keep in mind before you get started with such an initiative:

• The development and implementation of a DLT from scratch is complex. That’s probably the main reason why businesses commonly integrate with a provider of financial services who already has a DLT instead of developing their own solution. Besides, it’s more of an internal rather than a customer-facing instrument. So, branding and customization are not crucial here.
• Some fintech integrations may not have DLT. If you opt for a particular provider of financial or other integration, you may be disappointed by the absence of DLT in their offering. Examples are Stripe, PayPal, and Plaid. Despite being payment processor providers and Banking-as-a-service platform providers, they don’t include DLT as part of their offering. We recommend you consider Fintech Core by DashDevs. It has a fully-fledged DLT that is suitable for any business by default.
• Integration of DLT into existing IT infrastructure may be difficult. Needless to say that the virtual ledger is central to the entire digital system in place. Its integration and setup require substantial fintech expertise and experience from a trusted provider of software development services. Shifting from a centralized ledgers to decentralized ledgers is even more challenging in execution.

So, the success of DLT implementation is mainly the matter of selecting a suitable DLT service provider and a software development partner to set this technology up.

Final Take

Implementing a virtual ledger promises to significantly enhance the efficiency, security, and transparency of your fintech or non-fintech operations. It is totally suitable for both fintech and non-fintech businesses and supports any financial services you may be providing to your customers. The main difficulty with a DLT is its implementation. Choose fintech integrations with a DLT pre-integrated, such as Fintech Core by DashDevs, and you should expect no issue with your decentralized ledger.

Here at DashDevs, we can advise on the best DLT implementation approach, help choose a bank ledger implementation, and execute the dev process end-to-end. With more than 14 years of experience and over 500 projects behind our belt, we are ready, willing, and able to contribute to the modification of your best application.

Contact us