4soft Use Cases: Blockchain in Finance
For most people, first Blockchain appliance that comes to their mind is Bitcoin - the cryptocurrency, a digital coin that allows for transferring value between the users over the internet.
And indeed, Bitcoin was the first proof of Blockchain technology, created by Satoshi Nakamoto, its mythical founder. Since then, Blockchain was strongly tied to the banking industry due to the ability to transfer value combined with amazing cryptographic safety. It was even perceived as an alternative, and therefore a threat, to the traditional banking and finance. For many users, it was a way to bypass the banks in international financial transactions.
After 10 years since its invention, we can clearly see that things got more complicated and less antagonistic. The markets received the new technology well, and the banks are still pursuing new opportunities connected with it. For example, Santander estimates that Blockchain could save about $20 billion per year just within this industry.
Here’s a couple of examples on how to do that.
Blockchain Use Cases in Finance
International (Cross-border) Payments
One of the well-known benefits of Blockchain is the way it can eliminate the middleman. This single feature can significantly cut the cost of international transfers and increase their speed. A side effect is an immutable database, that lets you easily audit the data and prevent cyber threats and security breaches.
Smart Contracts are basically the programs that run on Blockchain. You can compare it to a traditional contract signed on paper - the difference is that thanks to the software component, it can fulfill its own commitment. It’s an amazing way to change a long and time-consuming process into a short, automated deal.
If you’re interested in this topic, take a look at our compilation of Smart Contract posts from our blog: https://www.l4a-soft.com/blog/post/5-essential-l4a-articles-smart-contracts
Blockchain is very useful in buying and selling shares. It gives you instant settlements, makes the process safe and secure, and (again) cuts the middleman. You can configure it in a way, that will create a transparent and accessible ledger for automated analysis and audits.
Probably this idea already came to your mind while reading about Smart Contracts. Getting a loan is complicated, requires a lot of effort, data processing, and document signing. Smart Contracts can solve this problem and smoothen the process. It translates into a better customer experience.
Accenture estimated, that using Blockchain the global Financial industry could save up to $10 billion.
The insurance industry is another example where an automated Smart Contract could work wonders.
For example, two parties sign a contract, where one of them has to pay every month $5. If the contract gets a signal from a third party that a certain event occurred, the contract automatically sends a certain money transfer to this person.
And well… you can use the same mechanism in gambling.
Benefits of Blockchain in Finance
Optimization of the Process of Creating Documents
You might be not aware of the fact, that in banking, some of the documents are still processed by fax up to this day. Everything that happens on Blockchain, stays in Blockchain. It reduces the paperwork and gives you an accurate point of reference for all the processes. It’s self-sufficient - you don’t need to take much care of its maintenance.
You can make the data available to everyone involved, reducing fraud and allowing your business partners for secure access. It can be very useful for example in insurance the industry.
Thanks to the immutability and transparency, the process of auditing the ledger is much more efficient than the traditional one. All the changes can be tracked in real time.
Due to the fact that the Blockchain stores data on multiple nodes, your data are very well protected from being lost - even if a number of nodes get destroyed, you can still have access to the complete database.
Real-Life Use Cases
Nothing speaks better than the projects, that actually works out there in real-life business environment - and there’s a lot of them. Take a look at this fine selection:
BBVA and Porsche €150 mln acquisition finance loan
An interesting and widely discussed case. It was covered on our blockchain blog quite some time ago - take a look at this post: https://4soft.co/blog/post/blockchain-use-case-bbva-and-porsche-loan
Barclays Blockchain-backed credit transaction between Ornua and Seychelles Trading Company
The security and transparency of Blockchain were leveraged in the encrypted trade documentation of Barclays bank. It reportedly saved them a lot of time and effort, simplifying the whole process.
The creators of Ivy realized that the current blockchain-based payments do not leverage the technology as good as they could. They fall short in providing the levels of transparency required for KYC and KYT, that are required to create trust and fulfill Anti-Money Laundering compliance rules for traditional financial institutions. A new solution - IvyKoin - was designed as an easy and transparent tool to transfer money in business. It keeps the data of transactions, as well as the information on senders and receivers in the Blockchain database convenient for the audits.
PKO Bank Polski
One of the biggest polish banks implemented a solution to store and send the amended product terms and conditions on Blockchain. It has over 5 million users - and prior to this innovation, each of them had to receive a letter with the traditional mail. That’s a huge shift in efficiency and costs.
Another example from Poland - the Polish Credit Office (BIK), implemented a blockchain solution for storage and access to sensitive customer information. It’s simply cheaper to keep it safe. The immutable database prevents any credit frauds.
Opportunities in the Middle East
Blockchain can also provide opportunities in the region, where personal banking isn’t developed yet. World Bank Global Findex Database shows, that only one in seven Middle-Eastern citizens own a financial account. It means that agile innovators can outrun the banks in reaching vast numbers of potential customers there. It can be a strong alternative to traditional financial solutions in this region.
Summary: Blockchain Opportunities in Finance and Banking
Blockchain technology has an intense and complicated relationship with legal regulations all around the world.
From one side, the cryptocurrencies started in a regulatory vacuum, exploding with the ICOs that weren’t in any way controlled by the law.
On the other hand, Blockchain helps to comply with the legal regulations with the encrypted immutable documentation and build a more efficient, flexible, responsive and automated infrastructure for banks.
But this tension creates a creative potential, and we already experience the influence of Blockchain technology on banking and fintech. We see its potential new use cases and the way it transforms the old structures in the industry - giving them unparalleled safety and transparency.
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