Blockchain technology has been one of the most discussed innovations in recent years, often associated with cryptocurrencies like Bitcoin. Yet, its potential extends far beyond digital currency. As blockchain matures, financial institutions are increasingly exploring how to leverage it to transform core functions, improve efficiency, reduce costs, and enhance security. With the global blockchain in financial services market projected to reach $22.5 billion by 2026, it’s clear that the industry sees blockchain as a powerful tool for the future. Here, we’ll dive into the real-world applications of blockchain in finance, exploring how it is changing the industry and the tangible benefits it brings.
1. Cross-Border Payments: Reducing Costs and Delays
Traditional cross-border payments can be costly and time-consuming, often taking days to settle and incurring high fees. Blockchain offers a solution through its decentralized ledger system, enabling faster, secure, and less costly international transactions. This is one of the most established use cases in financial services, and it is already in action.
Ripple’s RippleNet
Ripple, a leading blockchain network, has become a pioneer in this space. Its RippleNet platform enables real-time, cross-border transactions with significantly lower costs than traditional methods. Ripple’s clients include major financial institutions like Santander, Standard Chartered, and American Express. By using blockchain for payment processing, RippleNet enables banks to settle international payments in seconds. In fact, Santander reported that using Ripple for cross-border transactions reduced processing time by 75%.
JPM Coin by J.P. Morgan
J.P. Morgan has also developed its own digital currency, JPM Coin, to facilitate instant transactions between institutional clients. The platform uses blockchain to provide real-time, high-volume payments. According to J.P. Morgan, the platform processed over $1 billion in transactions within its first year. As more banks adopt similar solutions, blockchain’s potential to disrupt cross-border payments is becoming clearer.
2. Trade Finance: Simplifying and Securing Complex Transactions
Trade finance involves numerous documents, approvals, and intermediary processes that are prone to errors and delays. Traditionally, transactions could take weeks to complete due to the reliance on paper documentation and the need for multiple parties to approve transactions. Blockchain is beginning to address these inefficiencies, streamlining processes while ensuring security.
IBM and Maersk’s TradeLens Platform
TradeLens, a blockchain-based platform developed by IBM and Maersk, has transformed trade finance by creating a transparent, immutable record of transactions across the supply chain. Financial institutions, shipping companies, and other stakeholders can access real-time information on trade documents, reducing paperwork and minimizing fraud. The platform has enabled reductions of up to 40% in shipping time, translating to significant cost savings. TradeLens is now used by over 200 organizations globally, demonstrating the potential of blockchain in reducing trade finance complexities.
Marco Polo Network
The Marco Polo Network, backed by major financial institutions like BNP Paribas and Commerzbank, also uses blockchain to automate and streamline trade finance. The platform leverages R3’s Corda blockchain technology to digitize workflows, from order to payment. Since 2020, the network has processed hundreds of transactions, and participants report reduced processing times and greater transparency.
3. Securities and Asset Management: Enhancing Transparency and Efficiency
In traditional securities trading, transactions often involve multiple intermediaries, including brokers, exchanges, and clearinghouses, which can add complexity, cost, and time. Blockchain can streamline this process by creating a single, shared ledger for all parties involved, facilitating near-instant settlement, and reducing costs.
The Australian Securities Exchange (ASX)
ASX is in the process of replacing its Clearing House Electronic Subregister System (CHESS) with a blockchain-based platform. This new system aims to simplify post-trade processes, allowing for near-instantaneous settlement and reducing the risk of errors. According to ASX, the blockchain-based system could save the exchange up to $23 billion annually. While it is still in development, ASX’s initiative reflects how stock exchanges are leveraging blockchain for efficiency and cost reduction.
Securitize and Digital Asset Tokenization
Tokenization, or converting assets into digital tokens on a blockchain, is reshaping asset management. Securitize, a blockchain-based platform, allows firms to issue and manage digital securities, making asset management faster and more efficient. By enabling fractional ownership, tokenization also opens up investment opportunities to a broader audience. Securitize has issued over 300 digital securities for companies and asset managers globally, making it easier for companies to raise capital and for investors to access alternative assets.
4. Lending and Credit Scoring: Improving Access and Transparency
Blockchain is also transforming lending and credit scoring by increasing transparency and providing a secure method to verify borrower identities and histories. Traditional credit scoring models often exclude those without an extensive credit history, which can make it difficult for people in emerging markets to access loans. Blockchain offers a decentralized approach to lending, allowing individuals to build credit histories and access capital more easily.
Kiva’s Blockchain Platform
Nonprofit organization Kiva has launched a blockchain-based platform to help unbanked populations access credit. This initiative, piloted in Sierra Leone, uses blockchain to create digital identities and track credit histories, enabling people to access loans without relying on traditional banks. Kiva’s blockchain-based identity system now provides access to microloans for thousands of people, demonstrating blockchain’s power to improve financial inclusion.
Decentralized Finance (DeFi) and Peer-to-Peer Lending
Decentralized finance, or DeFi, allows users to borrow and lend funds directly without intermediaries. Platforms like Aave and Compound have pioneered blockchain-based peer-to-peer lending. Users can deposit their funds into a pool and earn interest while borrowers can access funds by putting up cryptocurrency as collateral. DeFi has become a multi-billion-dollar industry, with over $60 billion locked in DeFi lending platforms, highlighting the growing interest and trust in blockchain-based lending.
5. KYC and Anti-Money Laundering (AML): Ensuring Compliance with Reduced Friction
Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations are crucial for financial institutions to prevent fraud and money laundering. However, these processes are often time-consuming and expensive, with banks spending up to $500 million annually on KYC compliance alone. Blockchain offers a solution by providing a secure, decentralized record of customer data, allowing institutions to streamline compliance processes.
IBM’s KYC Blockchain Platform
IBM has developed a blockchain-based KYC solution that allows banks to share verified customer information securely, reducing duplication of effort. In partnership with several large banks, IBM’s platform has demonstrated that shared blockchains records can reduce KYC processing times by 30–50%. This approach enhances data security and efficiency, reducing onboarding time for customers and costs for banks.
UAE’s KYC Blockchain Consortium
In the United Arab Emirates, several banks have joined a government-backed KYC blockchain platform to facilitate faster and more efficient customer onboarding. By securely sharing KYC data, banks can reduce redundant paperwork and improve customer experiences. The initiative has been successful, enabling banks to onboard customers 40% faster on average.
6. Insurance: Streamlining Claims and Underwriting
Insurance is a complex, data-heavy industry that involves processing claims, verifying policies, and conducting underwriting. Blockchains can improve efficiency in this sector by creating transparent, immutable records that reduce the risk of fraud and automate claims processing.
B3i (Blockchain Insurance Industry Initiative)
B3i, a blockchains consortium of major insurance and reinsurance companies, is working to streamline processes using blockchain technology. The platform facilitates secure information exchange between insurers and reinsurers, allowing them to verify claims and policies more efficiently. By eliminating redundant steps and reducing manual paperwork, B3i has shown that blockchains can cut claims processing times and minimize fraud. Participants in the B3i platform report up to 30% time savings in claims handling.
Lemonade’s Smart Contract-Based Claims Processing
Insurtech company Lemonade has integrated smart contracts to automate claims processing. When a claim is filed, smart contracts on the blockchain assess the claim, verify details, and approve or deny it without human intervention. This has reduced claims processing time significantly, with some claims being settled in under three seconds. Lemonade’s innovative approach showcases the potential of blockchain to transform the insurance industry, providing quicker payouts and improving customer satisfaction.
7. Regulatory Reporting and Auditing: Ensuring Transparency and Reducing Costs
Financial institutions must comply with extensive regulatory requirements, which often involve detailed reporting and auditing processes. Blockchains can simplify compliance by creating transparent and traceable records that regulators can access in real time, reducing the need for manual audits.
Bank of France’s Central Bank Digital Currency (CBDC) Pilot
The Bank of France has experimented with using blockchains to streamline regulatory reporting for a central bank digital currency (CBDC). By using blockchain, the bank can provide regulators with a real-time view of transactions, reducing the need for post-trade reconciliation and manual audits. The pilot program has demonstrated blockchain’s potential to reduce compliance costs and improve transparency, and similar projects are underway in other central banks worldwide.
EY’s Blockchain-Based Audit Platform
Big Four accounting firm EY has developed a blockchains-based audit platform that enables auditors to verify transactions directly from the blockchain. This approach not only reduces audit time but also improves accuracy, as blockchain provides an immutable record of financial data. According to EY, blockchain-based audits have reduced manual work by 40%, showcasing the potential for blockchain to make compliance and reporting more efficient.
Conclusion: Transforming Finance Beyond the Hype
The applications of blockchain in financial services go beyond the hype, offering real, measurable benefits across various functions. From reducing costs in cross-border payments to enhancing transparency in regulatory reporting, blockchain is proving to be a valuable tool for financial institutions seeking to remain competitive and efficient. While there are still challenges, such as regulatory uncertainty and scalability.
