Top 7 Blockchain Application Use Cases in Banking And Finance
One of the most exciting Blockchain application use cases is in applying financial services and, in particular, asset tokenization in financial and real assets. By using blockchain technology, previously illiquid assets can now be converted into their tokenized form and cheaply and efficiently fractionalized, traded, and settled on-chain.
This can unlock liquidity for small business owners, entrepreneurs, residential real estate owners, and alternative investments such as previously illiquid venture capital and private equity, commercial real estate, and art.
This means that access to investments that were previously only accessible by institutional investors can be accessible to retail investors. Tokenization of assets removes the frictions for an asset to be freely traded on a global marketplace, allows investors to diversify their investment across a larger opportunity set, enhances liquidity and market depth of assets that otherwise would not be actively traded, and allows asset owners to capture a liquidity premium.
Banking and Finance Use Cases done by Blockchain Applications
Blockchain application offers a method for quickly and securely compiling a tamper-proof record of sensitive activities. This makes it ideal for money transfers and international payments.
For instance, Banco Santander introduced the world’s first blockchain-based money transfer service in April 2018. The “Santander One Pay FX” service enables clients to send money internationally the same day or the day after utilizing xCurrent from Ripple.
Historically, Santander has reduced the number of intermediaries needed in these transactions by automating the entire process on the blockchain, improving the process efficiency. As a significant commercial bank, Santander has many retail customers who would profit from faster and less expensive payments, especially for international transactions. Blockchain technology can lower the cost of these payments by eliminating the need for banks to process transactions manually.
Systems built on the blockchain could also enhance capital markets. Benefits that blockchain applications offer to capital markets include some of the following, according to a McKinsey report:
- the quickening of clearance and settlement
- unified audit trail improvements to operations
The blockchain-based startup Axoni was established in 2013 to enhance the capital market. Establishing a distributed ledger network to control stock swap transactions was most recently announced by Axoni. This network will allow both sides of an equity swap to remain synced throughout the swap’s lifecycle and communicate changes to one another in real-time.
Due to the lengthy procedures that frequently create business interruptions and make managing liquidity challenging, Traditional methods of trade financing have been a significant source of pain for companies. When exchanging information, such as the nation of origin and product specifics, cross-border trading entails a lot of variables, and transactions require a lot of paperwork. Blockchain has the potential to streamline cross-border trade finance transactions. It makes it possible for businesses to communicate more freely across national and geographic barriers.
Audit and Regulatory Compliance
Blockchain application’s incredibly secure features make them rather handy for accounting and auditing because they greatly reduce the likelihood of human error and guarantee the records’ accuracy. Additionally, once the account records are secured using blockchain technology, nobody, not even the record owners, can change them. The trade-off is that blockchain technology might eventually do away with the need for auditors and eliminate jobs.
Against Money Laundering
Again, the blockchain application’s inherent use of encryption makes it incredibly beneficial in the fight against money laundering. The technology that underpins record-keeping enables “Know Your Customer (KYC),” the procedure by which a company recognizes and confirms the identity of its customers.
Smart contracts are possibly the biggest blockchain use for insurance. Thanks to these contracts, customers, and insurers can manage claims in a clear and secure manner. Since the blockchain would reject numerous claims on the same accident, all contracts and claims could be recorded and verified by the network. This would eliminate any claims that were not valid. For instance, OpenID, a network developed by the American Association of Insurance Services and IBM, automates and streamlines insurance regulatory reporting on the IBM Blockchain Platform compliance procedures.
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Transactions between Peers
Although convenient, P2P payment services like Venmo have some limitations. Certain services limit transactions depending on location. Others demand payment in exchange for use. Additionally, many of them are hacker-prone, which is unattractive to clients disclosing their sensitive financial information. With all of the above advantages, blockchain applications could remove these obstacles.