10 Use Cases of Blockchain Technology in Banking 2022

The potential of Blockchain technology has piqued the interest of people all around the world. It is surrounded by a large throng of people who are seeking possibilities to implement and exploit the benefits of this revolutionary technology in their organization.

The BFSI (Banking, Financial Services, and Insurance) industry is leading the way in using this technology in order to reap benefits in the near future. The primary goal of establishing banks was to bring together related groups of people and enable transparent and secure communication between them through trade and business. A blockchain is a technology that can help with these tasks on a global scale.

Facts and Figures

• The Blockchain market is forecasted to grow at 62.73% CAGR through 2026 reaching $52.5 billion
• By 2026,  the largest North American Blockchain tech will be the Hybrid blockchain worth $6.7 billion.

These data clearly show that the Blockchain banking solutions sector is expected to generate more income by 2026 and that the development in banking and finance will continue. Though we already know that Blockchain technology will be responsible for a significant revolution in the BFSI industry, you should be aware of the digital asset bank development where the technology will streamline the process.

Let’s look at some of the ways blockchain technology and Blockchain banking applications are being used in the banking industry.

#1. Cross-border Payments

This is  the primary use case of banking and digital asset bank development. When it comes to blockchain finance, both central and commercial banks throughout the world are currently utilizing this new technology for payment processing and eventual digital currency issuance. This trend also includes cross-border payments, which were formerly dominated by Swift or Western Union.

Pros: Blockchain allows for faster and less expensive cross-border payments than traditional systems. For example, within the blockchain, remittance costs are 2-3% of the total amount, compared to 5-20% withheld by other third parties. Furthermore, as previously stated, blockchain does not require third-party authorization, significantly speeding up the cross-border payment process.

Usage Examples: Westpac, one of Australia’s largest banks, collaborated with Ripple, an enterprise blockchain solution for global payments, in 2016 to launch a low-cost cross-border payment system based on blockchain technology. Another large Australian bank, CBA, planned to collaborate with Ripple in 2015 to develop a blockchain-based ledger system for payments settlements between its subsidiaries. In 2016, the Federal Reserve of the United States collaborated with IBM to develop a blockchain-based digital payment system. These are not the only examples of banks utilizing blockchain; other well-known banks utilizing blockchain include Deutsche Bank, Barclays Bank, BNP Paribas, and others.

#2. Share Trading and the Stock Exchange

Buying and selling stocks and shares has traditionally involved a large number of third parties, including brokers and the stock market itself. The following is how trading works:

• The trade is started by either the buyer or the seller.
• A transaction is sent to a stock exchange by a broker.
• The transaction is matched with another party (the counterparty).
• The transaction is sent to the Central Counterparty Clearing House for risk assessment.
• To document the transfer, the buyer’s or seller’s representatives collaborate with the Central Securities Depository (CSD).
• The transaction is forwarded to the Registrar or Transfer Agent of Initial Trade in order to update their shareholder list.

The standard stock exchange procedure has several phases and bureaucracy, and it can take up to three days. However, due to the decentralized nature of blockchain technology, all unneeded intermediaries may be eliminated, allowing the trade to take place on computers all over the world. There will be no more dedicated servers linked together in a network.

Pros:  Transactions on blockchain reduce the redundancy of information and thus improve performance. As a result, smaller transactions between groups of traders can be quickly handled outside the blockchain, and only the final transactions are recorded to the blockchain, without any intermediary steps.

Usage Examples: In 2015, Nasdaq, the world’s second-largest stock exchange company, was planning to use blockchain for their Private Market Platform. They were going to implement a colored coin concept that could help to distinguish the coins used for trading from other coins. Besides, together with Citigroup, Nasdaq invested into the Chain blockchain ledger to power a shared and trusted distributed database that records all transactions and ownership changes in real-time.

#3. Trade Finance

Blockchain is especially essential in the trade finance industry, which involves financial transactions relating to business and international trade (not stock exchange trading). Even in today’s technologically disruptive world, many trade finance transactions still entail a lot of paperwork, such as bills of lading, invoices, letters of credit, and so on. Of course, many order management systems allow you to do all of this paperwork online, but it still takes a long time. Thus, trade finance makes another ideal use-case for blockchain banking solutions. 

Pros: By eliminating time-consuming paperwork and bureaucracy, blockchain-based trade finance can streamline the entire trading process. In a typical trade finance system, for example, each participant is responsible for maintaining their own database for all transaction-related documents. Each of these databases must be reconciled on a regular basis, and a single error in one document can be duplicated in multiple copies. Blockchain eliminates the need for multiple copies of the same document by combining all relevant data into a single digital document that is updated in real time and accessible to all network participants.

Usage Examples: Ornua, an Irish dairy product maker, teamed up with Barclays in 2016 to accomplish the world’s first blockchain and banking trade transaction. IBM and Maersk teamed up in 2017 to develop the world’s first cross-border blockchain-based supply chain system.

#4. Digital Identity Verification

Online financial transactions are impossible without identity verification. Moreover, this verification necessitates a number of processes, including:

• Checking in person (can be also via a video call such as Skype).
• Authentication: Every time a bank customer logs in to the service, they must authenticate their identity.
• Authorization: Evidence of the client’s intentions is required.

However a blockchain banking application  makes it possible to securely re-use identity verification for other services.

Pros: Users can choose how they identify themselves and with whom they consent to reveal their identity with blockchain in finance. They must still register their identity on the blockchain, but they will not have to do so for each service provider if those providers are also blockchain-based.

Usage Examples: Cambridge Blockchain and Tradle are two FinTech businesses working on blockchain-based client identity systems and leveraging blockchain to disrupt banking.

#5. Syndicated Lending

The provision of loans to individuals by a group of lenders, often banks, is referred to as syndicated lending (a syndicate). Due to the number of participants, standard bank processing of such syndicated loans might take up to 19 days. The following issues confront banks that manage syndicated loans.

Pros: The usage of financial blockchain for syndicated loan processing can provide a variety of compliance benefits to syndicate members. If one of the banks in a syndicate that uses blockchain has finished the compliance procedures, the other banks do not have to repeat them. As a result, by exchanging information through blockchain, any participating bank can benefit from blockchain banking solutions . This reduces the cost of complying with regulatory standards for syndicated lending while also saving time.

Usage Examples: Credit Suisse, Symbiont, R3, and Ipreo completed the first stage of a project involving the use of blockchain technology in the syndicated loan market in 2016. Seven international banks, including BNP Paribas, BNY Mellon, HSBC, ING, Natixis, and State Street, joined together in April 2018 to promote Finastra’s Fusion LenderComm, a blockchain platform for syndicated loans.

#6. Accounting, bookkeeping, and auditing

 No other field involves as much paperwork as accounting, and it is being digitalized at a gradual pace. The reason for this might be stringent regulatory standards surrounding data quality and integrity. Accounting is therefore yet another industry that may be altered by the potential of blockchain technology finance, from simplifying compliance to optimizing traditional double-entry bookkeeping. Companies can enter their transactions directly into a shared register, with the entries dispersed and cryptographically secured, instead of retaining separate records based on transaction receipts.  As a result, the records are more visible, and forgery efforts are nearly impossible. Consider it an “electronic notary” who verifies the transactions. Furthermore, smart contracts on the blockchain may be utilized to automatically pay invoices.

Pros: Standardization using blockchain would enable auditors to automatically validate the most critical data in financial accounts, lowering costs and saving time. The blockchain technology makes it simple to prove the integrity of electronic files. One method is to construct a hash string for a file that represents its digital fingerprint and then write that hash string onto the blockchain as a timestamp. An auditor can re-create the fingerprint and compare it to the one stored on the blockchain to prove the data’ integrity. The fact that the fingerprints are identical proves that the file has not been altered. As a result, audits can be carried out in real time rather than taking days or weeks.

Usage Examples: PricewaterhouseCoopers announced the launch of the first blockchain auditing service in 2018, which will allow organizations to assess how they are utilising the blockchain.

#7. Individual and Business Credit Reports

A Blockchain banking application can also assist consumers and small enterprises in obtaining loans swiftly based on their credit history. Lenders may take a longer time to analyze the borrower’s credit history. Small company owners do not have access to traditional business credit reports supplied by third-party credit agencies. Furthermore, paying firms to gain access to their sensitive data appears weird and risky. However, blockchain can give technologies that can allow borrowers to improve the accuracy, transparency, and security of their credit reports. The following is how it works with blockchain:

• The data owner adds their transaction history to the blockchain and secures it with a private key.
• The blockchain is maintained separate from the encrypted transaction.
• The blockchain stores the hashed encrypted transaction, as well as timestamps and metadata.
• The data buyer submits the credit history criteria.
• Smart contracts identify and evaluate potential data based on data owner control requirements.
• The data is filtered by the blockchain engine, and the results are returned.

Pros: Data verification costs and difficulties are reduced with blockchain-based credit reports. Furthermore, because the data is no longer maintained in a central repository, it is returned to individuals.

Usage Examples: Credit Dream is a mobile blockchain platform based in Brazil that links lenders and borrowers from all around the world for low-cost, confirmed loans. Lumeno.us is a New York-based firm that offers financial services based on blockchain technology, allowing business owners to securely share data in order to obtain a loan, locate trusted partners, or manage a portfolio or network.

#8. Hedge Funds

A hedge fund is a type of financial partnership that includes a fund manager and a group of investors (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. The number of hedge funds trading cryptocurrencies has more than quadrupled between October 2017 and February 2018, according to Autonomous NEXT. However, there is a distinction to be made between standard crypto hedge funds and decentralized crypto hedge funds.

Pros: Traditional crypto hedge funds are controlled by fund managers within a single corporation, whereas decentralised crypto hedge funds provide an open platform that allows many more crypto investors and strategists to join, according to Forbes.

Usage Examples: Alphabit Fund, Blocktower Capital, CoinShares, Crypto Asset Fund, and others are examples of decentralized crypto hedge funds.

#9. Crowdfunding (ICOs)

Crowdfunding is a method of raising finances by asking a large number of people, generally online, for a modest amount of money. This sector is ideal for blockchain banking solutions . The most well-known example of blockchain-based crowdfunding is Initial Coin Offerings (ICOs), which are financial instruments that assist to launch new cryptocurrencies. ICO tokens are comparable to corporation shares, except there is no equity exchange. Alternatively, investors buy tokens in exchange for existing cryptocurrencies like bitcoins or actual cash such as US dollars. If they are successful, they will be able to sell these tokens on cryptocurrency exchanges. Funds are obtained to realise a concept, similar to crowdsourcing, when the firm does not yet have a product.

Pros: ICOs offer a number of benefits, including the ability to sell tokens globally over the Internet, a premium for token liquidity, and decentralization of finance with the option to raise funds from anywhere. Furthermore, ICOs ensure transparency in the use of funds, a high return on investment, and high-reward assets that are unrelated to the stock market or the economy. Finally, ICO tokens can be split or consolidated, and they have the same level of anonymity as regular crypto currency.

Usage Examples: Mastercoin had the first initial coin offering (ICO) in 2013. However, Ethereum, a decentralized smart contracts platform and programming with ethers as coin tokens, is the most successful and investor-friendly ICO project. When Ethereum was first introduced in 2014, its initial coin offering (ICO) raised $18 million in bitcoins. After Bitcoin, ether is now the world’s second most popular cryptocurrency. Check out this detailed guide if you want to learn more about the Ethereum cryptocurrency.

#10. Peer to Peer (P2P) Transfers

Customers can transfer funds from their bank account or credit card to another person’s account through the Internet or mobile phone via P2P transfers. There are several P2P transfer software on the market, but each has its own set of constraints. For example, the ability to transfer money exclusively inside a certain geographical region, or the impossibility to transfer money if both parties are in the same nation. Furthermore, some P2P systems demand high charges and are not secure enough to keep critical data. All of these concerns may be addressed with blockchain-based, decentralised P2P transmission software.

Pros: Blockchain has no geographical boundaries; it is practically everywhere, allowing for global peer-to-peer transfers. Furthermore, because blockchain-based transactions are real-time, the recipient will not have to wait days or weeks to receive funds.

Usage Examples: Circle is a decentralized program that enables peer-to-peer (P2P) payments in both cryptocurrency and fiat currencies. According to Yahoo! Finance, Circle, which runs on the blockchain, allows customers to deposit money into Circle using a credit or debit card, rather than bitcoin. Bitwala, which combines the features of a chat and a P2P money transfer service, is another example of a decentralised P2P programme.

Is blockchain the future of banking, and will it replace established financial institutions? Who knows what the future will bring? In any event, an ever-increasing tidal wave of blockchain-powered financial solutions demonstrates that these technologies have the potential to disrupt the banking sector and create something entirely new.

If you are planning to start digital asset bank, Antier Solutions can help. We offer customized development services to build blockchain and crypto-based banking solutions. In addition, we offer a white label banking solution packed with all essential banking features – such as bank accounts, payments, credit/debit cards, trading, lending, and user onboarding.

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