The penetration of the smartcontracts in fintech is predicted to be the next big step in shape-shifting the financial industry, making it more efficient and transparent. According to a study conducted by Accenture, blockchain as a technology will play an important role in the success of the financial sector in the near future. From the analysis of their strategic planning team, the world banking sector will save up to $20 billion by 2022 with the help of this technology. Blockchain as a distributed ledger technology is bringing up game-changing innovations that are centered on revolutionizing the way transactions are conducted and improving global financial systems to make them more efficient. Blockchain technology has the ability to solve many pain points faced in the current financial system. Let’s see some of the main advantages of using blockchain technology in fintech as compared to the traditional system.

Decentralization: The decentralized nature of blockchain has provided strong security for many other industries. Maintaining a decentralized system gives authority to everyone in the network to check what happens in the system. Whereas, the centralized traditional systems give ultimate power to individuals who can work for their own personal benefits. Considering the fact of being centralized, frauds and other problems will occur with great intensity. This can be eliminated with the blockchain since all the members of the network have equal authority over the system.

Automation: Banks and financial activities are directly related to insuring deposits, verifications, approvals etc. But the time it takes to complete these processes are longer and not to mention the tiring paperwork. A possible solution for this is the use of smartcontracts which can automate several processes in the financial sector. For example, a transparent smartcontract can release the fund to the recipient automatically when a predefined condition is met. Say, releasing the money from an escrow account.

No intermediaries required: In a traditional system there are several middlemen interference seen. For example, when it comes to applying for a loan the burden of consulting each and every person in each section of a bank can be frustrating and tiring. Using smartcontracts, middlemen can be cut out from many possible situations in financial transactions

What is a Smartcontract?

Smartcontract is one of the most promising applications introduced by blockchain technology. Essentially a smart contract is a contract which can execute commercial transactions and agreements automatically. It is basically a computer program which is capable of executing, facilitating and enforcing the performance of a contract. The smartcontract has the potential to fill in several areas of the financial sector. Let’s take a look at the various fields where smartcontracts can be beneficial.

Reshaping banking sector with Smartcontract

The traditional financial sector relies on physical documents. This leads to delays, inefficiencies as well as increased risk in frauds. Smartcontracts address these issues by writing the contract in computer codes. These codes reside on the digital ledger, allowing superior security over the issues as seen in the traditional system. This also reduces the transactional and administrative cost associated with the contracting. Considering all these, the financial sector can take advantage of smartcontracts for the following uses:

Know Your Customer (KYC): Every financial organization is expected to verify and identify their clients before giving them any service. This process is done in order to obey the anti-money laundering law and regulation. KYC process is very costly and also inefficient when it comes to identifying a person. With smartcontract, automatic verification of individuals is possible. This is done by verifying the records against an approved central record of the clients. Which greatly reduces the cost of customer acquisition and reduces the time to provide services needed by the client.

Mortgages: With the self-executing and highly secure programs of smart contract, the overly complicated mortgage loan processes can be completed efficiently. This can also help in dropping off the processing fees given by the mortgage customer to the institutions by 22 percent, says Roberto Mancone, MD and Global Head Disruptive Technologies and Solutions at Deutsche Bank AG.

Bonds: In a conventional bond document, it merely states the amount the bond worth at its maturity, the time at which the bond issuer will pay the investor and the date at which the bond will expire. This information can also be written as a code in the smart contract. Those bonds written in codes are known as smart bonds. They also give information regarding rules about who can and cannot hold the bond.

Insurance: Smartcontracts allow a very useful solution to avoid the high insurance processing fees that are seen in the conventional system. Every insurance companies issue several extra charges along with the main insurance amount. These can be avoided as in the smart contract there are no third party involvements.

Smartcontract as a whole is the best solution to pace up the efficiency, security and reduce the costs in many of the processes under the financial sector. Making use of smart contracts allow the industry to provide good quality of service for the customers.