Blockchain in Finance: 8 Important Use Cases Beyond Cryptocurrency

BFSI (banking, financial services, and insurance) has been the dominant blockchain adopter to date, accounting for 38% of the global market value. Historically, the majority of blockchain’s derived value was accumulated in the fintech and cryptocurrency industries. However, blockchain has garnered significant traction among traditional financial institutions in recent years. The global blockchain market for conventional BFSI is expected to increase by a factor of ten and reach $22.5 billion by 2026. Traditional financial service providers view the rapid, transparent, secure, and cost-effective transaction processing offered by blockchain as a key factor in the technology’s expanding popularity.

At first glance, the growth of the BFSI blockchain market may appear counterintuitive, given the recent precipitous decline in cryptocurrency value and the overall volatility of the cryptocurrency market. However, there are two facts that financial institutions must bear in mind: Blockchain-based digital currencies Blockchain also provides access to smart contracts that can be used to automate a broad range of business processes, not just cryptocurrency transactions. In turn, smart contracts utilise crypto as a payment method for transaction validation on the blockchain. Consequently, the increasing adoption of blockchain for applications such as automated digital identity verification, document sharing, and securities tokenization drives greater demand for cryptocurrencies and aids the market’s survival. Notably, numerous BFSI titans, including JP Morgan Chase, Goldman Sachs, and Banco Santander, have already adopted blockchain for a vast array of general and industry-specific applications. Their practises and success tales prompted an industry-wide shift from using blockchain exclusively for the customer experience (e.g., to accept cryptocurrency payments) to embracing the technology’s capabilities for enhancing internal business processes. Let’s examine the most prevalent blockchain use cases in the BFSI sector to determine how the technology can improve the efficacy of financial operations, boost employee productivity, ensure data security, and stimulate revenue growth. 

Blockchain for international bank settlement

Due to the elimination of intermediaries such as commercial banks, clearing houses, etc., the use of blockchain in finance can drastically increase cross-border settlement speed and reduce its cost. The practise of the large institutions that have collaborated to implement blockchain for cross-border fund settlement demonstrates that blockchain reduces transaction processing time from days to seconds and processing fees from 5–30% to 2–3%.

Blockchain for automating corporate processes

The automation of financial transaction execution and recordkeeping made possible by blockchain-based smart contracts enables financial services firms to increase employee productivity and realise significant operational cost savings. The more complex and document-heavy a process is, the greater the benefits of blockchain-enabled automation. When implemented for insurance claim resolution, for instance, smart contracts demonstrated a 5x reduction in costs and a 3x increase in claim processing speed. In fact, the provisions of virtually any legally binding financial contract can be formalised in smart contracts to serve as rules that govern the automated enforcement of specific business actions. The emergence of proxy contracts successfully resolved the problem of smart contract updateability. With proxy contracts, it is possible to readily adapt the logic of a smart contract to reflect changing agreement terms.

Blockchain for the administration of financial documents

Management of financial documents is another crucial area where blockchain technology has the potential to benefit financial institutions. The technology enables end-to-end tracing of any user activities associated with the creation, amending, viewing, copying, and routing of financial documents to third parties. It facilitates the establishment of secure and transparent document storage and sharing, which contributes to an increase in the level of trust between financial institutions and their clients. 

Blockchain to detect fraud

The BFSI sector confronts the greatest proportion of fraud risks from employees. In 2021–2022, approximately 52 percent of misconduct cases reported by U.S. financial institutions involved employees. By providing immutable, time-stamped records of all business transactions and manipulations of financial data and documents, blockchain facilitates the opportune detection and prevention of malicious user behaviour.  If your blockchain is combined with artificial intelligence, fraud detection can be carried out in a fully automated and highly accurate manner.

For digital identity verification, blockchain

Since 2017, the volume of identity theft has multiplied fivefold, resulting in $56 billion in losses by 2021. It compels financial institutions to seek out an effective strategy to combat identity fraud and avoid financial and reputational risks. Here, blockchain also provides a substantial assisting hand. Unique client information can be depicted as a decentralised identifier, or NFT, encrypted, and recorded on a tamper-resistant distributed ledger using blockchain technology. The blockchain-based storage of tokenized digital identities provides a single source of truth for validating a client’s ID while protecting all sensitive personal information. 

Blockchain compliance with KYC/AML

Maintaining KYC and AML compliance is a further use case in which blockchain can provide significant value to financial services providers. The elimination of time-consuming and error-prone manual KYC and AML customer identity verification is made possible by the automation of compliance checks facilitated by smart contracts. The immutability of the blockchain ensures the integrity of the data provided by an organization’s customers, thereby preventing unauthorised access to financial services. 

Blockchain technology for business decision-making

Considering the intricate governance structure of large financial institutions, strategic business transactions are not always readily decided. Blockchain can facilitate collaborative decision-making and foster trust among an organization’s constituents. At its foundation, blockchain technology provides a highly secure and incorruptible e-voting model. Using tokenized governance rights and algorithm-based vote verification and tallying, financial services providers obtain credible voting and enhance manager engagement.

Blockchain for accessibility of services

With the global transition towards greater financial inclusion, traditional BFSI market participants must reach the underserved population and make their services available to those in the lowest income bracket. Here is where DeFi excels and traditional finance falls short. DeFi’s prominence is due to blockchain’s high accessibility. The technology facilitates simple, 24/7 access to major financial services regardless of location or credit history. Clearly, traditional banks and financial service providers are not prepared to fully adopt P2P. Nonetheless, an increasing number of financial institutions are adopting blockchain-based solutions or partnering with DeFi platforms to expand their consumer base and reduce the cost of their services. In addition to their commitment to the social cause, BFSI companies are also motivated by pragmatism: entering the rapidly evolving DeFi market and expanding their customer base creates new revenue opportunities and reduces risk. 

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