To the extent that the concept of “immutability” has entered the business lexicon, it is usually in the context of blockchain. By definition, a blockchain is an immutable database, meaning that the data stored in a blockchain cannot be changed. But it turns out immutability is valuable outside of blockchain and is critical for Fintechs.

In a blockchain, the way immutability works is that every transaction involving a change to the data is recorded as a block on the chain. The next time someone wants to alter the database, their desired changes are stored in another block and linked back to prior blocks.

This means that if you want to change something, it’s always going to be tracked from here forward. If you wanted to hack into the blockchain and change something, you’d have to track down every block going back to the alteration and then re-write them all, which would be incredibly difficult - if not impossible.

Why does this matter for Fintechs?

If a payment flow is short and straightforward, immutability is less important. Say you pay for groceries with a debit or credit card. Unless you return an item, the ledger entry recording that transaction will be straightforward.

But payment flows can become convoluted fast. Disputed items can lead to a waterfall of changes as credit card payments to interest, deferred interest, fees, principal, etc., are recalculated and distributed based on the payment pouring logic and payment allocation rules.

Regular ledgers will simply reflect the state of an account following the most recent calculations. And this can make it difficult to recreate what an account looked like before a dispute was registered.

In contrast, an immutable ledger lets you retrace the events that affect account balances. They expose errors that may otherwise be overwritten. They enable full and complete audits. They prevent ledgers from changing in undetectable ways.

Immutability is essential for Fintechs because it builds trust. It ensures all changes to an account are captured in the ledger and that the state of an account can be recreated to reflect any moment in time.

Immutability is hard to do, and it can get expensive. But it is necessary to unlock more personalized, transparent, and safer lending products that consumers are asking banks and Fintechs to provide.

Image courtesy of Bradley Jasper Ybanez and Unsplash