Three Use Cases of Blockchain in Finance


When it comes to blockchain technology, banks and financial institutions have been paying close attention to it over the last few years. The success of the cryptocurrency bitcoin captured the imagination of many business professionals and displayed the deep potential and use cases of blockchain in finance.

Blockchain’s ability to verify data independently of an intermediary and circulate it across an entire network has positioned it firmly on the radar of a number of financial firms. The reason is that it addresses pain points that have been holding back financial institutions for years. The traditional manual processes of financial institutions are characterized by inefficiency.

Identity documents have to be manually checked before a transaction starts to be handled. The result is transactions that are inefficient and costly to both institution and customer alike. Blockchain promises to increase the efficiency of financial processes in a number of ways.

The World Economic Forum suggests that blockchain provides operational simplification, codifying agreements and enabling “real-time monitoring of financial activity”. This means that when a bank monitors a transaction, they will be able to do so with full transparency. They will not have to sift through agreements and disparate data because it will all be located in the blockchain. Here are some of the main use cases of blockchain in finance.

1. Efficient Settlements with Blockchain

One of the biggest pushes towards blockchain lies behind the finance industries desire to minimize and automate the settlement process. The reason is that the longer the settlement process goes on, the more costs are accumulated managing it. As such, deploying blockchain offers a way to streamline the settlement process.

Institutions can use blockchain technology to automate their settlements and store them in one location. This minimizes the settlement process and boosts an institutions efficiency dramatically. Right now, a number of firms are piloting the blockchain platform Hyperledger to streamline their settlement process.

2. Blockchain as an Identity Management Solution

As mentioned above, financial institutions are forced to verify the integrity of the documents and personal data provided by those they do business with. They have to make sure information is correct in order to minimize fraudulent activity within their company. Blockchain technology will allow financial institutions to record and monitor their customer’s identities in one location.

This means documents will not have to be located and monitored manually. The blockchain system will verify the integrity of a subject’s personal data with the network and conduct transactions automatically once this is complete without relying on legacy, inefficient intermediaries. In this instance, blockchain will make it much easier for banks to do business by cutting down manual processing.

3. Smart Contracts for Instant Transactions

Most banks fall under the umbrella of having to verify contracts before transactions are completed. Blockchain allows financial institutions to automate the entire process. By deploying smart contracts, an institution could restrict the transfer of funds until specific criteria in the contract are fulfilled. Even complex contracts with multiple parties can be managed via the use of blockchain.

As of December 2017, UBS launched a pilot utilizing Ethereum smart contracts in order to compile party reference data and other global banks such as Barclays and Credit Suisse are following suit. This blockchain project, and others like it cut down the amount of paperwork needed to uphold a contract. Likewise, they provide a verifiable record of each party’s involvement in the agreement. This results in a lower settlement time and increases the standard of service.

Tim is a Tech and B2B Content Writer who’s developed a passion for reading on all things blockchain and cryptocurrency. He’s always looking for the next opportunity to write on disruptive technologies.

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