blockchain use cases in banking

Blockchain’s initial purpose was to provide a mechanism where cryptocurrencies can exist. Over several years, blockchain technology has evolved to become a robust and secure platform that benefits a wide variety of industries. Forbes states that blockchain has the power to record, validate transactions without the need for third-party authorisation made possible by decentralisation. 

The most popular domain of blockchain is in the financial services, and in this article, you will learn the different use cases of blockchain this industry. Today, it is evident that blockchain can instigate tremendous changes across the financial sector. Aside from lowering costs, blockchain might soon obliterate the need for land-based bank branches. The technology has so much power and potential that it is disrupting the industry. In fact, several banks have already used blockchain technology in their processes. Top corporations exploring blockchain include large banks and financial institutions such as Industrial and Commercial Bank of China (ICBC), China Construction Bank Corporation (CCB), JPMorgan, and Agricultural Bank of China Limited. 

Top Blockchain Use Cases in Banking and Financial Services

1. Cross-Border Payments

Banking and financial systems work with payments every single day. Blockchain technology has helped central and commercial banks across the globe by streamlining payment processes. One of the blockchain use cases in banking is the facilitation of cross-border payments. Cross-border payments are now possible and more accessible with blockchain technology. One of the advantages of blockchain is the provision of affordable transactions. For instance, blockchain-powered remittances only cost 2-3% of the total amount compared with 5-20% charge in traditional systems. Since blockchain does not require third-party authorisations, the process is much faster. 

In 2016, Westpac collaborated with Ripple for its global payments. During the same year, IBM worked with the US Federal Reserve to introduce a blockchain-powered digital payment system. 

2. Share Trading and Stock Exchange

Tradings of shares and stock rely heavily on third parties such as stockbrokers, stock traders, and even the stock exchange per se. If you understand how trading works, you know that when the buyer or seller initiates a trade, the transaction goes through the stock exchange. The stock exchange will then match it with another party before it gets sent to the Central Counterparty Clearing House for risk evaluation. The Central Securities Depository (CSD) to list the transfer before submitting it to the Transfer Agent of Initial Trade to update the shareholders’ list. Just imagine how long the process takes. Most transactions can take up to three days. In blockchain technology, where everything is decentralised. Through technology, the tedious process can now be done in less than minutes. 

In addition to streamlining the process, blockchain will also reduce information redundancy, which will further improve performance. In 2015, Nasdaq planned to use blockchain for their Private Market Platform where they will use a coloured coin concept to help differentiate coin trading. The second-largest stock exchange also partnered with Citigroup to create a blockchain ledger where they will input transactions and ownerships in real-time.

3. Trade Finance

Trade finance refers to all financial activities related to international trade and commerce. This sector, despite the advancement in technology, still deals with tons of paperwork such as invoices, bills of lading, and letters of credit. While many of these activities are now online, it is still time-consuming. 

Another one of blockchain use cases in banking and financial sectors is the facilitation of commercial transactions without paperwork and bureaucracy in trade finance. In a traditional trade finance platform, all those involved must keep their personal database for all sales. These records must then be counter-checked against each other. Mistakes in one document can affect all the documents. With the use of blockchain, there will be no need to create several copies. Updating and integration of information can now be real-time.

4. Digital Verification of Identity 

In banking and financial institutions, it is always a must to verify identity before processing transactions. This verification takes a lot of time. Some do face-to-face checking, others require authorisation and authentication before the transaction can proceed. 

By using blockchain, users can undergo verification of an identity without the need for authentication by another party. While they need to register their identity within the blockchain, they will have to do it once and not every transaction. Of course, this is provided that they are dealing with a blockchain-powered platform.

5. Syndicated Lending

One of the top blockchain use cases in banking and financial industries is in syndicated lending. Syndicated lending refers to banks or a group of banks that provide loans to individuals. Since there are several stakeholders, the process can take 19 days to a month. Banks often have to do:

  • Client identity verification through Know Your Customer (KYC)
  • Prevention, detection, and reporting of any possible money laundering activities to comply with the Bank Secrecy Act (BSA) and Anti-Money Laundering (AML).

By using blockchain technology, the financial services can boost this process and increase its transparency so customers can also become aware of their loan process. Banks will benefit from using a decentralised ledger where they can distribute the task of complying with government regulations and policies and associate them with one customer block. 

Loan providers do not have to do the entire process for a single client. They simply have to access the ledger and see all information about a customer. They can also see whether a particular customer still has outstanding loan accounts, which will help prevent the practise of double-spending. In 2018, seven international banks united to support Fusion LenderComm, blockchain platform explicitly created for syndicated loans. The Agricultural Bank of China Ltd uses a distributed ledger to streamline loan process for unsecured agricultural loans to e-commerce enterprises. They use the accounting to check whether the land used as collateral has been used in other banks.

These are just some of the top blockchain use cases in the banking and financial sector. If this industry can further exploit the power and potential of blockchain, the technology has more to offer, and it would not be impossible to see a world powered by blockchain. 

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