Blockchain technology was initially developed as a mechanism for cryptocurrencies. But it is now used for much more than just cryptocurrency transactions. Blockchain is a powerful and safe technology used in almost every field, from banking to medicine to the government.
Technology affects many industries, from how contracts are enforced to making the government work more effectively. It can increase transparency and fairness while also saving businesses time and money.
Blockchain in the financial sector can provide several advantages that could help transform the sector. KPMG claims that blockchain technology can increase efficiency by 40%, decrease capital consumption by up to 75%, and reduce errors by up to 95%.
I have covered 20 real-world use cases of blockchain in finance. Its use in these areas is already changing the way we do business.
20 blockchain use cases in finance
Cross-Border Payments
Banks usually charge an additional fee for transfers across countries, which are usually slow. However, the use of blockchain has brought fast and cheap cross-border transactions.
Blockchain technology has the potential to reduce costs while also accelerating payment processing. Banks can reduce the need for verifications from other intermediaries by utilizing blockchain.
- Lending Platforms
Before the advent of blockchain, people needed middlemen to build trust and facilitate transactions. However, using immutable smart contracts, blockchain technology in finance enables borrowers to negotiate directly with lenders regarding the interest rate, payment schedule, and transaction length.
Reputable financial institutions like ING and Credit Suisse have exchanged high-quality, liquid assets worth EUR 25 million using a blockchain-based lending application.
- 3. Insurance
Blockchain can automate claims processes by confirming coverage between reinsurers and companies. Additionally, it will automate payments for claims between parties, which will cut insurance companies’ administrative expenses.
Buying
- Stock Exchange
A trade takes time because many middlemen buy and sell stocks and shares, including brokers and the stock market. However, due to the decentralized nature of blockchain technology, it can do away with all middlemen and enable global trading on computers. This will reduce information duplication, which will, in turn, improve performance.
- Credit Score
Before proceeding with a loan application, banks and other financial institutions demand an applicant’s credit score. The lack of mobility in credit ratings is one drawback of the current credit management system. However, with blockchain technology, banks can easily access immutable records of financial transactions to determine a person’s creditworthiness. Also, an applicant’s personal information is never compromised or made public, thanks to smart contracts.
- solution for billing and invoice management
Although businesses are moving toward electronic invoicing, they do not yet have the standards to implement invoice-backed financing efficiently.
Companies can use smart contracts to upload invoices to the blockchain. It can store data such as the payment deadline, the required payment amount, and client information. When the person pays the invoice, the smart contract updates the status of the invoice to “paid” and notifies the businesses that the client has made the payment.
- 7. Trade Finance
Blockchain is also crucial for the trade finance industry, which deals with financial transactions related to domestic and international trade (not stock exchange trading). Many trade finance activities still involve a lot of paperwork, such as bills of lading, invoices, letters of credit, etc., even in today’s technologically disruptive world. Even though many order management systems allow for the online completion of all this paperwork, it still takes a lot of time.
Using blockchain technology can reduce the amount of paperwork, which in turn will enable faster transactions.
- Fund Investment
Currently, fund investments are expensive and time-consuming. The current process uses multiple databases and manual processes. This will limit errors and ensure transparency and easy access to data.
- Government Expenses
Governments worldwide are implementing digital techniques to modernize legal procedures and foster positive relationships with the masses.
Suppose the governments start using blockchain to store the data related to expenses spent on city development. In that case, the public can monitor the amount of money spent on projects. The whole “fight against corruption” movement can be avoided with this.
- Political Funds
Voters can get more information about how political parties use public money if that information is recorded on a blockchain. Voters can pick better political parties by using blockchain.
- Accounting, bookkeeping, and audit
Accounting is another industry in which blockchain technology’s power in finance can change. For example, double-entry bookkeeping can be made more efficient and compliance easier. Instead of keeping separate records based on transaction receipts, businesses can write their transactions directly into a shared register with related entries.
Banks’ traditional way of handling syndicated loans can take up to 19 days because so many people are involved. Banks’ traditional way of handling syndicated loans can take up to 19 days because so many people are involved. Most of the time, they have trouble with anti-money laundering (AML) and the Bank Secrecy Act (BSA), laws meant to stop people from laundering money.
With blockchain, syndicated lending banks can reduce the complexity and effort required to verify this information since it’ll be uploaded on the blockchain network.
- P2P Transfers
Customers can use P2P transfers to send money from their bank or credit card to another person’s account over the Internet or a mobile device. Some P2P services have high commission fees and are not secure enough to store sensitive information. Also, most of them do not permit the transfer of funds from one region of the world to another.
Decentralized, blockchain-based P2P transfer apps can address all of these problems.
- Hedge Funds
When used properly, blockchain technology for hedge funds has the potential to support business processes and find solutions to problems. Internally, blockchain can be used to keep track of investors’ funds and who owns complex assets or investment vehicles.
- Financial Record-Keeping
Businesses are likely to use blockchain technology to store financial records that can’t be changed, like financial histories, profits, and dividends.
With blockchain technology, shareholders can access pertinent information through the smart contract.
- Crowdfunding (ICOs)
Blockchain is decentralized and doesn’t rely on other platforms to generate money. So when crowdfunding on blockchain technology, there will be no rules to follow, and any project can gain visibility and funding if investors choose to do so. Also, there will be no additional fees, making crowdfunding more affordable for creators.
- Individual and business credit reports
A blockchain banking application can help individuals and small businesses quickly get loans based on their credit histories. It might take the centralized lenders more time to review the borrower’s credit history before granting the loan.
- Buying and Selling Assets
Blockchain technology lowers the cost of asset exchanges by eliminating intermediaries and transferring asset rights. According to studies and analyses, using blockchain to move securities can reduce the annual costs associated with the global trade process by more than $20 million.
Conclusion
Although blockchain was created to rival traditional finance, the financial institutions it was meant to compete with now show interest in it. The benefits of blockchain technology cannot be ignored; banks now realize this and have adopted the technology into their systems.
Blockchain has functioned in various financial sector segments, as seen in this article. It has improved the sector’s processes and procedures, leading to a better performance rate.