Blockchain

Applying Blockchain To Banking & Finance, Five Use Cases

Blockchain is a distributed software network that works both as a digital ledger and as an enabler of the secure transfer of assets without an intermediary.

Just as the internet enables the digital flow of information, blockchain as technology facilitates the digital exchange of units of value. From currencies to votes can be tokenized, stored, then exchanged on a blockchain network.

The first manifestation of blockchain technology emerged in 2009 with the Bitcoin blockchain, a secure, censorship-resistant, peer-to-peer electronic cash system. Since there are many potential use cases that have been explored, here are a few in banking and finance:

1. International Payments

Banks charge fees on all international transfers. These fees are high, and sometimes exorbitant because several intermediaries are involved in the process: the source bank, central bank, correspondent bank, and, finally, the recipient bank. Transactions sometimes take up to a week before the money reaches the hands of the recipient.

Blockchain is the most efficient, transparent, and secure way to facilitate international payments because it is based on distributed ledger technology (DLT), with records verified by a network of computers and visible to all parties versus held in a central database. Transactions that take place on DLT cannot be altered, reversed, or tampered with, which makes the payment process secure. Money is transferred directly to the recipient’s bank, eliminating the need to go through other correspondent banks.

For example, with advanced blockchain technology for global payments, financial institutions are expanding into new markets around the world and are even eliminating pre-funding by leveraging the power of XRP through RippleNet’s On-Demand Liquidity service.

2. Capital Markets

Reconciliation is a time-consuming and labor-intensive process. Blockchain technology allows information to be shared across participants of a transaction in a common configuration. The use of ‘smart contracts’ with blockchain technologies enables a real-time check on the availability of trade instruments.

Startup Axoni builds blockchain-based solutions specifically for capital market improvement. It runs a distributed ledger network to manage equity swap transactions — enabling both sides of an equity swap to be synchronized throughout their lifecycle, communicating changes to each other in real-time.

3. Finance for Trade

Blockchain technology makes trade financing efficient by completing the transactions directly between the parties with no intermediary involved and with digitized information. Using blockchain technology the parties operate smart contracts that trigger commercial actions automatically. This thereby reduces costs and increases the speed of transactions. Importers and exporters also track goods and assets.

Marco Polo Network has built the world’s first blockchain-enabled, distributed network of trade finance and payment solutions. They provide an open enterprise software platform for trade, payments, and working capital finance solutions to banks, corporates, tech companies, and many others.

4. Auditing

Currently, the auditor needs to be provided with financial information such as trial balances, reconciliation of account balances, adjusting journal entries, and supporting spreadsheets in electronic and manual formats. Auditors spend a substantial amount of time obtaining supporting documents and information and schedules for planning and performing the audit. As a complete record of transactions is stored on a blockchain, auditors no longer need to request and wait for trading parties to provide data and documents.

Hacken estimates the security of your smart contract through its auditing solutions and shows potential ways of improvement. A smart contract audit by Hacken includes functional analysis and a manual security review of the code. The audit produces a detailed and precise review of each line of the code and checks the logic of the contract.

5. Insurance

Claims, administration, underwriting, and product development have the potential to be impacted by the use of blockchain. Blockchain has the ability to help automate claims functions by verifying coverage between companies and reinsurers. It also automates payments between parties for claims and thus lowers administrative costs for insurance companies.

Etherisc builds decentralized, blockchain-centric applications for different sub-sectors of the insurance industry. It’s also working on a blockchain parametric crop insurance platform for small farmers in Kenya. The objective is for weather events to trigger insurance payouts automatically.

And these are just a few. Its evident blockchain technology can be of great use to the financial sector: improved operational efficiency and reduced risk versus legacy systems which presents huge potential for new products and services.

Disclaimer: The views, thoughts, and opinions expressed in the text above belong solely to the author, and don’t reflect views of the author’s employer, organization, committee, or other group or individual.

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