Blockchain was originally designed to enable bitcoin, but Blockchain development services have diversified its ability to change entire industries. Although Bitcoin and other cryptocurrencies are exclusively using blockchain technology, Blockchain use cases are setting a good example in finding its way into nearly every field, from finance to health and many more.
Blockchain’s unique features will help organizations cut expenses, boost profits, improve customer service, and more. Therefore many blockchain development solutions have already provided dramatic benefits to different businesses.
Blockchain technology’s core characteristics include decentralization, transparency, immutability, and automation. With the help of smart contract developers these elements can be applied to various industries, including Finance, Banking, and Insurance. Hence, in this blog, we will discuss the multitude of examples of blockchain technology in these three industries.
Use Cases of Blockchain in Finance
Undoubtedly, security is of utmost importance for the financial domain. Hence, among the many potential use cases for blockchain, finance is arguably the most prominent one. And the best part is that smart contract development companies is creating disruptive potential to generate more revenue, enhance process efficiency, improve end-user experience, and minimize risk in financial sector.
Here are some use cases of blockchain technologies in the financial sector.
1. International Payments
Today, a lot of middlemen handle global payments and remittances, and many charge fees for their services. Sending $200 between countries takes 2 to 7 days and costs 6.94% on average. This indicates that fees, intermediaries, and financial institutions cut remittances by $48 billion. Blockchain has the potential to improve payment and remittance procedures, cutting settlement times and costs dramatically.
When it comes to blockchain examples in finance, financial institutions all over the world are now tapping into this new technology in terms of payment processing and the potential issuing of their digital currencies. This trend also embraces cross-border payments, which have been powered mostly by Swift or Western Union until now.
2. Trade Finance
The infrastructure, methods, and money that underpin international trade supply chains are referred to as trade finance. Traditional trade financing techniques have been a big source of frustration for firms because the lengthy processes frequently disrupt operations and make liquidity difficult to manage. Cross-border business involves a number of variables when exchanging information, such as place of origin and product qualities, and transactions necessitate a lot of paperwork.
These paper-based processes are vulnerable to cyber-attacks. Additionally, processing letters of credit, verifying papers, and establishing confidence among stakeholders can take up to 90 days.
The digitization of the entire trade financing cycle is possible with blockchain. A digitized trade finance blockchain project not only provides much-needed digital assets to upstream suppliers, but it also improves efficiency by speeding up processing times, reducing human error, and lowering the risk of fraud.
3. Capital Markets
Current financial markets are a substantial barrier to entry for startups and other firms wanting to raise funds. To begin with, the requirement to conform to stringent laws drastically restricts the pool of potential investors. As a result of the difficulties in complying with rules, investments have a low degree of liquidity.
The same restrictions apply to asset management in the future. For example, voting and cap table administration is complicated, error-prone, and costly because of legacy systems. All of these problems in the “status quo” add up to an unreasonably high cost of capital and a stumbling block in the capital allocation process.
By streamlining processes and reducing settlement times, blockchain-based capital markets and asset management solutions outperform traditional systems. Operational risks like human error and fraud are reduced by enabling the digitization of processes and workflows. As a result, overall counterparty risk is decreased, as is the capital cost.
4. Hedge Funds
A hedge fund is another type of Blockchain example that is made up of fund management and several participants (limited partners). Hedge fund participants, on the other hand, are traders rather than ordinary investors. A hedge fund’s goal is to maximize investor profits while minimizing risk.
Between October 2017 and February 2018, the number of hedge funds trading cryptocurrencies more than doubled as per a report by Autonomous NEXT. However, there is a distinction to be made between typical cryptocurrency hedge funds and decentralized cryptocurrency hedge funds.
Traditional crypto hedge funds are controlled by fund managers within a single entity. However, decentralized crypto hedge funds provide an open platform allowing many more crypto investors and strategists to participate.
Blockchain technology directly influences the way investors interact with hedge funds. The impact on performance reporting is one of the most significant potential consequences. The use of a blockchain makes it easier to track the success of hedge funds. This allows investors to track the performance of hedge funds more transparently, assisting them in selecting the best ones for their portfolios.
Use Cases of Blockchain in Banking
Blockchain can change the way people do business around the world. Commercial banks are finally understanding that the benefits of blockchain can no longer be ignored, and smart contract development company can help you to reap all the perks. Here are blockchain use cases in the banking sector to help you understand how the financial services industry will be experimenting with the technology in the near future.
Here are some blockchain examples in the banking and financial sector.
1. Faster Payments
Blockchain technology has already started to challenge the banking industry in terms of payments and other money transfers. As a result, it’s no surprise that many banks are looking at what technology has to offer.
Banking institutions can employ emerging technologies to promote speedier payments and cheaper processing fees by providing a decentralized channel (e.g. crypto) for payments. Banks might introduce a new level of service, launch new goods to the market, and finally compete with creative fintech firms by delivering stronger security and lower payment costs.
Furthermore, commercial banks will be able to reduce the requirement for third-party verification by implementing a blockchain system. And, it will also speed up the processing of traditional bank transfers.
2. Digital Identity Verification
Online financial transactions are impossible without identity verification. KYC is a procedure by which banks gather information about a customer’s identity and address. It’s a regulated practice of completing due diligence on clients to verify their identity. This approach ensures that the services provided by banks are not exploited.
In the traditional KYC system, each bank conducts its own identification check, which means that each user is scrutinized by a separate organization or government body. As a result, confirming each identity from scratch is a waste of time.
The blockchain architecture and distributed ledger technology (DLT) aid in the collection of data from many service providers into a single cryptographically secure and immutable database. It does not require a third party to validate the knowledge’s authenticity. Besides, it allows for the creation of a system in which a user only needs to go through the KYC procedure once to confirm his or her identity.
3. Lending and Borrowing
Blockchain in the banking industry can improve the lending and borrowing activities that banks facilitate. The extensive verification capabilities of the technology may help to lower the risk of bad loans. Furthermore, blockchain can verify that borrowers aren’t criminals or bad actors, enhancing banks’ know-your-customer (KYC) and anti-money-laundering (AML) capabilities.
Loan syndication is another area where blockchain can help. Large loans to corporations are typically provided by a group of banks. This is a time-consuming procedure that necessitates cooperation among lenders and can take up to 19 days. In the old procedure, all banks involved in the processing of a syndicated loan must individually ensure KYC and AML compliance.
However, Blockchain technology allows a bank that has already completed the compliance requirements to securely communicate that information with the other loan parties, greatly simplifying the process.
4. Peer to Peer (P2P) Transfers
Peer-to-peer transfers enable users to transfer funds directly from their accounts to another person. There are many traditional P2P transfer applications, but with numerous constraints like region, fees, safety and convenience.
With blockchain payment systems, the security concern can be addressed conveniently since a blockchain-based payment system is decentralized. Besides, payments can be conducted worldwide as blockchain doesn’t have any limitations geographically. Another benefit of implementing blockchain technology is that transactions in blockchain occur in real-time. Therefore the payment speed will significantly increase.
Use Cases of Blockchain in Insurance
Blockchain in insurance has the potential to be a game-changer, with great benefits such as increased cost efficiency, reduced risk, and more. Blockchain use cases in insurance have the potential to change the way physical assets are handled, tracked, and insured digitally.
Here are some blockchain examples in insurance.
1. Claims Management
Smart contracts are without a doubt the most important transactional protocol for insurance. Numerous smart contract development companies help customers and insurers to manage claims securely and transparently. Now the question comes how smart contract helps so, it enables insurance companies to store all contracts and claims on the blockchain and authenticated by the network thereby reducing invalid claims by rejecting numerous claims for the same accident.
Additionally, hiring smart contract developers can help validating coverage between corporations and reinsurers, increasing the potential to automate claims operations. It will help streamline payments between parties for claims, lowering insurance firms’ administrative costs.
For example, openIDL, a network created in collaboration with the American Association of Insurance Services and implemented on the IBM Blockchain Platform, automates insurance regulatory reporting and streamlines regulatory compliance procedures.
2. Fraud Prevention
Extra premiums from insurance fraud might cost a family $400-700 per year. According to an FBI report, non-health insurance fraud in the United States is estimated to be worth roughly $40 billion every year.
Due to the immutability property of blockchain, moving insurance claims onto a blockchain-based distributed ledger technology that is shared among insurance firms cannot be updated, and it can eventually eliminate fraud.
In addition, blockchain makes insurer cooperation easier. When insurers use the same shared blockchain ledger, they can see if a certain claim has been paid right away. They can rapidly spot suspicious conduct since they use the same historical claim data.
Reinsurers are companies that provide insurance to insurance companies. It is because the insurance companies won’t get burdened when many claims occur at the same time. For example, when a natural calamity like an earthquake or flood occurs.
However, there is one problem with the reinsurance process. It is very complicated, inefficient, time-consuming, and necessitates duplicate manual tasks. Furthermore, the procedures are based on one-time agreements.
Blockchain can expedite these processes and information flows which benefits both insurers and reinsurers. Reinsurers and insurers can share a blockchain ledger. This enables data relating to policies, premiums, and losses to simultaneously exist on insurers’ and reinsurers’ systems. The method eliminates the requirement for reconciliation. It can also help you save time and money. Claim processing and settlement can also be automated by reinsurers.
4. Health Insurance
Wouldn’t it be great if health insurance claims were processed faster and customers paid less? This is achievable with blockchain in healthcare. Medical data may be sent quickly, accurately, and securely between healthcare providers and insurance using Blockchain technology.
In the context of sharing patient data among hospitals and health insurance providers, privacy rules can make the process of processing health insurance claims time-consuming and costly. In fact, the lack of complete information can often result in claim denials.
Healthcare providers and insurers can access a patient’s medical data without jeopardizing patient confidentiality when encrypted patient records are stored on a blockchain.
The synchronized database of patient data has the potential to save the industry billions of dollars each year. Furthermore, because the blockchain may hold cryptographic signatures for each medical record, patient privacy is assured.
The financial sector has undergone significant changes as a result of blockchain technology, and it is still evolving. Payments become extremely safe when distributed over network nodes of computers, with little possibility of tampering or data alteration.
Enterprises that effectively deal with the challenges of centralized payment systems and build a committed and skilled team to install a blockchain payment system in their organization may easily reap the benefits of the blockchain solutions.
More companies in the finance, banking, and insurance sectors are concentrating on the use cases of blockchain to speed up corporate processes, lower payment processing costs, add additional security layers, and address potential business concerns. Both public and private businesses are concerned about decentralization because it has the potential to propel their growth into the mainstream.