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What are the use-cases of Blockchain in the financial services industry?Jan. 12, 2018, 6:22 a.m. GMT
One of the most discussed topics in the financial services industry today is Blockchain technology. We are beginning to understand what a Blockchain is, but how can we best use this technology within our business?
There are many use-cases of Blockchain in Financial services. Let’s have a look at some of them.
1. Settlements in Asset Management
Traditional trade processes within asset management can be slow, manual, cumbersome and filled with risk when reconciling and matching – and they’re getting more complex with cross-border transactions and for non-standard investment products, e.g. loans. Each party in the trade lifecycle currently keeps their own copy of the same record of a transaction, creating significant inefficiencies and room for error.
Blockchain technology would simplify and streamline this entire process, providing an automated trade lifecycle where all parties in the transaction would have access to the exact same data about a trade. This would lead to substantial infrastructural cost savings, effective data management and transparency, faster processing cycles, minimal reconciliation and the potential removal of brokers and intermediaries altogether.
2. Claims Processing in Insurance
Fraudulent claims, manual processes, fragmented data sources, policies for one user sitting in silo and legacy underwriting models are some of the biggest challenges experienced in the insurance sector today – all causing low customer satisfaction.
Creating policies as smart contracts on the Blockchain is an ideal use case for insurance. It offers complete control, transparency, and traceability for each claim and could lead to automatic pay-outs. Blockchain technology would also improve risk modeling for the sector, break down the existing silos and significantly reduce fraudulent claims by capturing the origin and ownership of diamonds, paintings, homes, cars, and other assets to be insured.
3. Trade Finance in Supply Chain
The digital transformation of the supply chain and trade finance is one of the most exciting opportunities for smart contracts and Blockchain.
Existing supply chains are complex, slow, distributed, involve many parties across the world and they usually don’t even trust each other. Automatically executing Smart Contracts on the Blockchain to transfer titles to goods and money removes the need for banks to provide products such as Letters of Credit. It drastically reduces costs by cutting out the middlemen and their fees and creates a trusted network of assured authenticity and origin of products being supplied.
4. International Payments
It still takes days to transfer money to another country. And it is unbelievably expensive sometimes costing as much as 7% of the remittance. The global payments sector is a complicated mesh and it need not be so slow, costly, error-prone and so manual. It’s desperately in need of a shake-up and Blockchain is already providing solutions here.
Several banks have applied Blockchain to payments, enabling customers to make international payments 24 hours a day, clearing the next day. It’s only the first step, but Blockchain will eventually enable banks to provide real-time payments while reducing operational costs, human error, and fraud.
Blockchain will make international payments much faster and secure than the traditional model.
5. KYC in Compliance
Financial institutions across the world are responsible for complying and reporting on a number of requirements from their local regulator. Know Your Customer is a key requirement here but the process can be incredibly time consuming and lack the automated customer identification technology and integration needed by teams to efficiently carry out their work.
Blockchain technology could provide a digital single source of ID information allowing for the seamless exchange of documents between banks and external agencies. This would likely result in automated account opening, reduced resource and cost, all whilst maintaining the privacy of data that is legally required.
To learn more about use-cases of Blockchain in a different sector, please visit Blockchain and Bitcoin Certification by Blockchain Semantics.