Blockchain technology is more than just a passing trend, it is fundamentally changing how our financial systems operate. Blockchain, with its decentralized, irreversible, and open characteristics, resolves a lot of difficulties and trust issues that come along with traditional banking systems.
Here are the 10 important ways that blockchain is disrupting the banking and finance sectors with descriptions, real-world use cases, and specific stats.
1. Cross-Border Payments
Typically, when reaching for cross-border payments, slow and expensive are the rules. The conventional systems used for cross-border payments, such as SWIFT, typically require between 2–5 business days to move your funds from bank to bank, relying on multiple correspondent banks and different fees along the way.
However, with blockchain, there are no middlemen or intermediary services, and you can instantaneously send or receive your money from anywhere, at little expense.
Real World Use Case:
Ripple has developed RippleNet and XRP Ledger to facilitate blockchain-based remittances at tremendous speed. There are several banks currently using Ripple technology to move money internationally from bank to bank in seconds. For example, Santander, Standard Chartered, and PNC have used Ripple to move its customers’ funds across borders in seconds versus days.
Significant Stats and Facts:
- The global average cost of sending remittances is 6.2%, but blockchain can drop this below 3% (World Bank).
- The cross-border payments market is projected to reach $250 trillion by 2027.
- Santander’s One Pay FX, powered by Ripple, has made millions of transactions with same-day delivery.
Did You Know?
While speed is an obvious advantage, blockchain technology also allows for increased transparency, allowing both sender and receiver to see the real-time payment status.
2. Fraud Detection and Anti-Money Laundering (AML)
Financial fraud continues to be a significant risk. With blockchain’s inherent transparency and tamper-proof ledger, any transaction is traceable. As a result, it is easy to spot fraud and virtually impossible to hide or alter evidence of fraud.
Real-world Use Case:
HSBC is a pioneer in blockchain’s digitization of trade finance, wherein it has also made efficiencies in AML. In 2022 alone, HSBC processed more than $250 billion in FX trades on the blockchain, and noted a significant decrease in manual risk processes.
Key Stats & Facts:
- $5 trillion is lost annually to financial fraud, according to the Crowe Report.
- Compared to traditional approaches, banks can reduce false positives in AML up to 70% with blockchain.
- More than $50 billion is spent by banks annually on compliance and fraud detection efforts.
Did You Know?
Smart contracts on the blockchain can automate alerts for suspicious transactions, thereby automating your real-time AML compliance, while also weaning you off outdated manual systems.
3. Know Your Customer (KYC) Simplification
KYC compliance is very significant; however, it is often repetitive and expensive. Customers often have to verify their KYC every time they open a new account or register with a new service provider. Blockchain allows for a decentralized approach to identity management to enable customers to verify only once and permit services when needed.
Real-World Use Case:
The UAE KYC blockchain platform launched with Dubai Economy in partnership with some banks allows customer information to be transmitted and securely shared among institutions, reducing onboarding timelines in half.
Key Stats & Facts:
- The banking industry could save up $10 billion/year in KYC costs by 2030 (Juniper Research).
- The timeline for customer onboarding can shift from 3–5 days down to only several minutes.
- 80% of the KYC documentation could be usable by other institutions via blockchain.
Did You Know?
Rather than choosing when identity verification occurs at each touch point, soon users will have the ability to control access to their digital identity wallet and have the option to share on-chain whenever they deem fit.
4. Trade Finance
Trade finance has a ton of labor-intensive paper documents as well as a lot of manual, outdated processes that add time and cost. Blockchain will digitize trade finance and allow for automated documents, instant verification, and tracking of goods and payment.
Real-World Use Case:
HSBC and ING used the R3 Corda platform to execute a live trade finance transaction, and cut the processing time from 5–10 days to less than 24 hours.
Key Stats & Facts:
Paper-based systems still account for over $18 trillion in global trade financing. The World Economic Forum estimates that blockchain will reduce trade financing costs between 20–30%. Smart contracts can automate the execution of letter of credits to lower the number of disputes from all parties.
Did You Know?
The World Economic Forum explains that blockchain has the potential to open an astounding $1.1 trillion worth of new trade from digitizing trade finance, specifically in developing markets.
5. Syndicated Loans
Syndicated loans again involve multiple banks lending to one borrower. Coordinating these arrangements is long and clumsy. However, through blockchain, banks can share documentation (including consent) and process payments among all the participants with additional efficiency.
Real-world use case:
Credit Suisse and ING entered into a transaction involving a syndicated loan using a blockchain-based process through the Fusion LenderComm platform, and this reduced the time it took to settle the loan from 7–10 days to less than 24 hours.
Key Stats & Facts:
- The global syndicated loan market is greater than $4.5 trillion.
- Blockchain has the potential to reduce the operational cost of loan administration by 20–50%.
- Loan servicing timeframes can often be accomplished in real time, rather than waiting days.
Did You Know?
Blockchain’s use of real-time updates, and shared ledgers with all relevant parties on the transaction, removes the back-and-forth process which leads to delays and miscommunications.
6. Smart Contracts for Derivatives and Settlements
Derivatives involve many moving parts, agreements, and related conditions. Smart contracts allow for derivatives agreements to be signed between interested parties, and the contracts will automatically execute when specified conditions are met, eliminating human error, and providing greater levels of trust and reliability.
Real-world case:
ISDA is working with a number of fintech companies to develop standard templates for smart contracts for derivatives to reduce settlement risk, and reduce or eliminate disputes in the OTC market.
Key Stats & Facts:
- Notional value of the derivatives market: greater than $1 quadrillion.
- Settlement time for derivatives transactions could be reduced from T+2 days to near-instant.
- 30–50% reduction in operational costs and legal overheads using smart contracts.
Did You Know?
Smart contracts provide “atomic settlement” — the simultaneous execution of all sides of a financial contract in a risk-free manner, while greatly limiting the risk of default.
7. Tokenization of assets
Blockchain can divide real-world assets (real estate, art, stocks, etc.) into digital tokens, allowing for greater liquidity and broadened access to investors around the world.
Real-world Use Case:
The SIX Digital Exchange in Switzerland has already begun issuing tokenized bonds and is attempting to launch regulated tokenized equity offerings.
8. Real-time auditing and regulatory reporting
Auditing is typically done in hindsight and can take some time to process data. Blockchain can provide regulators and auditors with direct access to transactional records in real time and thus reduce an organization’s chances of fraud and compliance risks.
Real-world Use Case:
EY has developed a blockchain auditing tool called Blockchain Analyzer. This tool allows real-time auditing of crypto transactions for clients like BitFlyer and other exchanges.
Key Stats and Facts:
- Lost revenue due to financial reporting errors costs companies $37 billion annually (BlackLine).
- Using real-time auditing could reduce the workload of internal audits by 50%.
- Blockchain solutions allow for transparency, traceability, and automatic reconciliation.
Engaging Insight:
Imagine a world where the audit is done in real time, with notification at the time of transaction, and without the stress of year-end, and the improved regulatory oversight.
9. Central Bank Digital Currencies (CBDCs)
CBDCs are state-backed digital currencies operated on blockchain or DLT-based systems. They provide a secure and programmable alternative to physical money, while at the same time, reducing entirely the need for private cryptocurrencies as alternatives to currency.
Real World Use Case:
China’s Digital Yuan (e-CNY) is already used in some cities (Shenzhen and Suzhou), and a transaction volume of over $250 billion has been processed through the ready-to-use CBDC.
Key Stats & Facts:
- Over 130 countries representing 98% of the global GDP are researching CBDCs (Atlantic Council, 2024).
- The Bahamas, Nigeria, and Jamaica have already launched CBDCs.
- Digital currencies can reduce costs associated with cash management by 70 to 75%.
Engaging Insight:
CBDCs can also potentially provide programmable money, for example, allowing the release of time-limited stimulus or enabling tax payments to be automated, for an additional level of control over monetary policy.
10. Decentralized Finance (DeFi)
DeFi is an emerging and rapidly expanding blockchain ecosystem offering a decentralized alternative to banking products, e.g., lending, borrowing, trading, and insurance, but no intermediary is involved.
Real World Use Case:
MakerDAO, Compound, and Aave provide participants the opportunity to earn interest, or borrow money when using their crypto as collateral — and smart contracts automate the process.
Key Stats & Facts:
- Total Value Locked (TVL) in Decentralized Finance (DeFi) soared to over $180 billion in 2021, and remains at a strong over $60 billion in 2024.
- DeFi interest rates are 5–10 times higher than those at traditional banks.
- Over 5 million wallets have engaged with DeFi protocols to date.
Interesting Fact:
DeFi is not just a new idea, it’s a financial revolution to bank the 1.4 billion unbanked people across the globe.
Conclusion:
Blockchain is no longer a special experiment. It is a foundational technology, disrupting the global financial infrastructure. As banks and regulators begin to embrace blockchain, the bank and finance industry will begin a path towards faster, cheaper, and more transparent. For those in the bank and finance space, it is no longer an advantage to adopt early, it is a necessity.
