Blockchain Use Cases; Banking Industry
The additional use cases of blockchain technology in the global banking industry include capital markets, investment management, payments and remittances, banking and lending, and insurance claims. Complete details about each use case are presented below.
- Blockchain technology assists banks in the area of issuance, sales and trading, clearing and settlement, post-trade services and infrastructure, asset servicing, and custody.
- The Postal Savings Bank of China (PSBC) has teamed up with IBM to launch a blockchain-based asset custody system. The PSBC notes that it has successfully executed more than 100 real business transactions using blockchain since the system went live in October 2016.
- The PSBC worked with IBM to use its hyperledger fabric in the creation of the first deployment in China to apply blockchain technology to asset custody in the financial industry.
- As part of these efforts, the bank worked with IBM to develop an asset custody system built on the hyperledger fabric. Upon completion of a design thinking workshop and joint development work with IBM, the bank embarked on a two-month trial operation; during which it completed over 100 asset custody transactions involving buying and selling bonds.
- During the trial, the system demonstrated blockchain’s ability to help streamline the traditionally complex credit verification process and manage risk, helping financial institutions operate more securely and efficiently.
- Blockchain technology in investment management is applied to fund launch, cap table management, agency transfers in asset management, and fund administration.
- Calastone announced the launch of its distributed market infrastructure (DMI) which uses blockchain to help its 1,800 clients manage transactions for the mutual fund sector.
- In September 2018, Swedish bank SEB teamed up with NASDAQ to test a fund trading platform created by blockchain technology.
Payments and Remittances
- As far as payments and remittances in banks are concerned, blockchain technology assists in domestic retail payments, domestic wholesale and securities settlement, cross border payments, tokenized fiat, stablecoins, and cryptocurrency.
- In payments and remittances, Banco Best (a bank based in Portugal with expertise in banking, asset management, and trading, with financial products and services on a global scale) processes end-to-end fund transactions using blockchain-based infrastructure in conjunction with FundsDLT, a blockchain-based decentralized platform for fund transaction processing.
- From an operational efficiency standpoint and concerning payments and remittances, blockchain initiatives benefit investors, distributors, and transfer agents greatly.
- SEBA bank has been developing tokenization solutions that "will help clients to issue and manage financial assets on multiple blockchain protocols and connect them to investors easily and cost-effectively."
- The bank plans to offer the tokenization of fiat, precious metals, and alternative assets including real estate, commodities, and art. It will also help companies with security token offerings.
Banking and Lending
- With regard to banking and lending, blockchain technology is applied in credit prediction and scoring, loan syndication, underwriting and disbursement, and asset collateralization.
- Banks will profile corporate credit risk blending financial indicators with supply chain performance metrics. This point represents the hinge that will connect the corporate supply chain process data with innovative credit risk models for banks. Banks will capture and analyze events in the physical supply chain to generate a more profound and realistic representation of a company’s risk profile.
- A clear example comes from the concept of a Bank of Amazon that could offer online financial services.
- Spain’s BBVA and two partner banks have completed the first syndicated loan using blockchain, providing a working example of how transactions in the $4.6 trillion per year market can be simplified and made faster using technology that underpins cryptocurrencies.
- In 2018, BBVA used a private blockchain network to arrange a $150 million syndicated loan for Red Electrica, the Spanish grid operator, with co-lenders MUFG of Japan and BNP Paribas of France. Legal advisers, Linklaters and Herbert Smith Freehills, also had access to the system which allowed all parties to exchange information instantly.
- Syndicated loans were identified early on as a key use for blockchain in financial services since banks rely on outdated and inefficient processes including faxes to share information between different parties who are structuring complex agreements.
- The German group Dürr raised a €750 million ($840 million) syndicated loan using a blockchain platform developed in-house. The coordinating banks were BNP Paribas, Commerzbank, Deutsche Bank, and UniCredit. The company said the debt was raised with attractive terms. It features an interest rate linked to the company’s sustainability rating provided by the EcoVadis agency.
- For the banks offering insurance, blockchain technology helps in claims processing and disbursement, parametrized contracts and reinsurance markets.
- Blockchain’s ability to provide complete accountability, transparency, and superior security will help insurers save time and money, as well as improve customer satisfaction.
- Through its use of public ledger, blockchain can potentially eliminate suspicious and duplicate transactions by logging each transaction. Through its decentralized digital repository, it can verify the authenticity of customers, policies, and transactions by providing historical records. This makes it more difficult for hackers to corrupt and steal files.
- Blockchain does provide foundational technology that promotes trust, transparency, and stability. Blockchain is in the early stages of adoption, but there are already a handful of ways that insurers are leveraging the technology to mitigate the challenges of security, big data, third-party transactions, smart contracts, and reinsurance.
- Blockchain can handle the increase in third-party transactions and claims made through personal digital devices; it also helps reduce administrative costs through automated verification of claims/payment data from third parties. Now, insurance companies can quickly view past claims transactions registered on blockchain for easy reference. This promotes higher degrees of trust and loyalty between the insurer and the customer.
- The Bank of China used blockchain to streamline insurance claims. The new Bank of China platform aims to increase transparency and efficiency across the nation’s insurance industry.