5 Use Cases of Blockchain in Finance That Show Value


The financial industry continues to lead blockchain adoption by making significant investments in the technology and expanding its use.

Deloitte’s March 2020 report on key blockchain trends found that 38% of financial services firms plan to invest $5 million or more in blockchain technology in the coming year, compared to 33% in the previous 12 months.

This money follows the large-scale investments made by the industry over the past decade, when blockchain caught the world’s attention with the arrival of the Bitcoin cryptocurrency in 2009.

Today, more than 40 central banks are studying and experimenting with distributed ledger technology, which allows data to be stored on servers in a decentralized manner.

With blockchain, the financial industry is improving security, reducing risk and lowering costs by providing visibility and reducing friction along the long list of transactions that accompany most financial interactions, according to financial industry authorities and blockchain experts. These benefits of blockchain in turn reduce costs for financial firms.

McKinsey & Company has estimated that blockchain technologies used in cross-border payments could save around $4 billion annually. Previous studies such as one from consulting and services firm Capgemini and another from Santander Bank have estimated that blockchain could yield $16-20 billion in annual savings.

Early successes and these numbers are now prompting the industry to expand its use of blockchain in many directions. Here’s a look at five blockchain use cases in the enterprise that are already showing promise.

1. Perform conventional tasks faster and cheaper

Financial institutions traditionally operate as intermediaries transferring payments between different entities, which involves complex and time-consuming processes that add friction to transactions.

Blockchain can streamline these processes – including reconciliation as well as clearing and settlement – ​​by removing friction, thereby reducing the time and costs incurred by financial institutions.

For example, in April 2020, European fintech company SIA launched blockchain infrastructure to enable Spunta Banca DLT, a private project based on distributed ledger technology for interbank reconciliation, promoted by the Italian Banking Association (ABI) and coordinated and implemented by ABI Lab, a banking research and innovation center.

“The interbank transaction reconciliation process in Italy – formerly governed by the spontaneous process – was notoriously complex,” said Charley Cooper, CEO of R3, an enterprise blockchain technology company.

“With multiple parties involved, the task of identifying and resolving inconsistencies has historically been hampered by a lack of standardization, the use of fragmented and fragmented communication methods, and no single version of the truth,” he said. added. “As a result, resolving discrepancies in transactions has been a laborious and time-consuming process. These issues have made the spontaneous process an ideal candidate for automation through blockchain technology.”

Similarly, the financial industry can use blockchain to eliminate the manual processes needed to collect and share the documents often required for transactions, whether those documents are custom forms, insurance policies, or other myriad types collected by banks and financial services companies.

2. Support a shared software network between entities

Since blockchain builds trust between multiple parties, the financial industry can use the technology to create network resource schedulers (NRPs).

Consulting and research firm Everest Group described NRPs as a “blockchain-based software system that helps manage data and processes across multiple stakeholders in a corporate network.” It enables organizations to provide a more consistent customer experience by allowing each organization to access the system.

“We see that there is a way for companies to come together to solve customer problems and create a better customer experience,” said Ronak Doshi, vice president of Everest Group. “But the only way to bring them all together is with foundational infrastructure – blockchain fits right into that.”

3. Facilitate and track data flow within the financial institution itself

Although blockchain is often championed for enabling trust between different organizations, financial institutions are beginning to use it to create trust between internal departments.

“What we’re seeing is increased use of blockchain for internal use cases,” said Richard Walker, director of Deloitte Consulting and the company’s chief blockchain officer for financial services. “It really delivers great enterprise value for intra-company data movement, customer data protection, and compliance with regulatory requirements.”

For example, he cited the use of blockchain in some organizations to facilitate intra-company payments where financial information flows from ledger to ledger. “It’s a chain of information connected through these ledgers,” he said, adding that these blockchain use cases create transparency on capital and liquidity.

According to Walker, some entities are also considering blockchain for know-your-customer activities to ensure that customer data is consistent and up-to-date across the organization, which is especially critical for financial institutions deciding how much risk to take. based on customer data.

Large banks, for example, often have several systems for customer records – two dozen or more in some cases. Distributing customer information across multiple systems increases the risks of unintended data discrepancies and intentional misrepresentation, both of which could negatively impact business between the customer and the institution.

Blockchain can counter these issues by ensuring updated data is up-to-date across all systems and creating an audit trail of changes to customer data.

Similarly, financial institutions can use blockchain for data lineage to assure themselves and regulators that there is an auditable trail from the point of origin of the data to its end state.

4. Hold digital assets

In July 2020, the Federal Office of the Comptroller of the Currency (OCC) released a statement confirming the authority of national banks and federal savings associations to provide cryptocurrency custody services to customers. Thus, financial institutions will be able to hold cryptocurrency keys and digital assets.

“Many banks have custodial services for different assets – blockchain enables the creation of custodial services for digital assets like Bitcoin and tokens,” said Saket Sinha, global vice president of blockchain solutions at IBM.

5. Replace paper money

If the world wants to move away from physical currency – paper notes and metal coins – and the problems and inefficiencies associated with it, it will need a distributed network like blockchain to get there.

“The ability to generate more digital payments and more real-time payments depends on the availability of a distributed ledger,” Doshi said.

There is already a lot of interest in this blockchain use case, experts say, adding that financial executives believe such a move will further reduce friction and create more transparency, which in turn will speed up transactions, generate greater savings, increase security and reduce financial risk. crimes.

They noted that the work already underway with blockchain in the financial sector is moving the global economy in this direction. While it’s unclear when the world will abandon physical currency for digital assets, many leaders believe it’s not far off.

According to Deloitte’s 2020 Global Blockchain Survey, 83% of 1,488 survey respondents said they “strongly or somewhat believe [digital assets] will serve as an outright alternative or replacement to fiat currency within the next five to ten years.”

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