Blockchain use cases in financial services
The blockchain is an imperative part of the financial industry. Here are some of the Blockchain use cases in financial services industry.
Smart Contracts backed business transactions
Smart contracts are programmatic contracts that are coded/written between two parties who agree to certain pre-set terms before the transaction. Each of these terms mentioned in the contract may be linked to an action item. Once the conditions are satisfied, the action item is executed. For example, when there is a transaction being done between two people, they can create a smart contract that the amount would be put in an escrow and once the product gets delivered, it will release the payment. If the product is found to be defective by the customer, the amount would be returned to the original wallet of the customer. The parties can add other conditions to the contract as well based on mutual agreement. Smart Contracts form the foundation for many of the services that the financial industry would be providing in the future. All made possible by blockchain technology.
A sizeable number of the population across the world are considered ineligible to hold a bank account. This stratum of the population has financial needs to meet basic necessities like food, shelter, and education. Cross-border lending allows global financial service providers of any size from other countries to get started. With the power of blockchain, financial service startups could also enter and provide services at low-interest rates. This is our second most favorite on the list of blockchain use cases in financial services.
Our third most favorite on the list of blockchain use cases in financial services is smart assets. Blockchain would prove to be a game changer in the Asset management business of the financial services. Having an immutable record of all the assets along with the timestamp, characteristics, and details of the ownership on a blockchain will avoid siphoning of assets. Assets that are digital would also have limited details of the owners made public on the blockchain, so it can be traced back to the source. There are specific blockchains like the NEM blockchain which are built for the Assets management use cases. In case of transfer of the assets to another party, the transaction details of the transfer would also be recorded permanently on the blockchain, so there’s no confusion.
Transactions usually can be manipulated to hide the source, recipient and the amount. This has been a common issue for many years for auditors / governmental agencies trying to audit the transactions of businesses and individuals. Blockchain offers an open, immutable solution that can possibly end the manipulation practice. Transactional data made on the blockchain technology cannot be changed, making it one of the trusted mediums for auditing. As all the transactional data including the source, recipient and the time stamp are clearly mentioned for each transaction, this also saves time while auditing these transactions. There are enterprise-grade private blockchains which are being built specifically for enterprise level transactions, these blockchains are equipped with necessary tools to audit & report transactions easily. This is our fourth most favorite on the list of blockchain use cases in financial services.
Speeding up Cross-border payments
Transactions done across the border would take more than 2 days to go through multiple payment channels before reaching the customer. In addition to that, the sender is burdened with addition transactions fee and conversions fee depending on the service provider they are sending through. In the case of financial emergencies, this payment is incompetent and expensive. Blockchain-based payments are much simpler and are inexpensive, the amount to be sent is converted to the cryptocurrency of choice and then sent to the recipient who can then withdraw the amount in a fiat currency they prefer. The transaction fee for transactions done on the blockchain is much cheaper and it can happen within a few hours. Thus making it one of the strong blockchain use cases in financial services.
Claims and Settlement
Insurance claims take time, due to the volume of open cases and the time it takes for assessment. If the amount needs to be settled from one insurance company to the other, the time taken could take months to settle. This entire process is slow and inefficient. The smart contract on the blockchain can change that. The terms and all the conditions are programmatically coded into a smart contract when these conditions are met, the amount is automatically settled to the recipient if the conditions are not met, the claim is rejected. This is our sixth most favorite on the list of blockchain use cases in financial services.
Precoded smartwill are smart contracts that are created for individuals who wish to draft their will with the names and identifying information of the rightful heirs to their properties and assets. The smartwill would execute once the system is made aware of the individual’s demise or once the conditions set by the individuals are satisfied. Smart will is automated and cannot be tampered with. This makes it one of the most secure forms of transferring inheritance and our seventh most favorite blockchain uses cases in financial services.