Enterprise Ethereum

Blockchain for Banking and Financial Services

Financial institutions around the globe recognize the transformative impact of blockchain technology on the financial services industry. 

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The Need for Blockchain in Banking and Finance

Blockchain technology has the potential to transform the banking and financial industry. According to a report by Jupiter Research, blockchain deployments will enable banks to realize savings on cross-border settlement transactions of up to $27 billion by the end of 2030, reducing costs by more than 11%. This is only one of many ways in which blockchain will impact the financial industry. Large financial institutions are recognizing distributed ledger technology will save billions of dollars for banks and major financial institutions over the next decade.

Of the many use cases for blockchain, perhaps the most widely discussed are those in the financial services sector. Here are what we believe to be the most relevant blockchain use cases for banks and financial institutions.

The Future of Banking and Finance

Global Payments

Blockchain enables banks and corporations to make cross-border money transfers which provide real-time settlement and reduce costs by optimizing liquidity and eliminating reconciliation. Distributed ledger technology also allows for convenient regulatory oversight because the entire ledger is recorded and immutable. This means that auditing a company via their blockchain ledger would directly show were flows of cash went in at out and to whom. The blockchain’s time-stamped entries would provide a record down to the second companies made or received payments.

Insurance – P & C Claims Processing

Blockchain technology can automate claims processing through smart contracts and securely facilitate claims management for property and casualty (P&C) insurers. Enterprise Ethereum smart contracts can improve assessment of insurance claims by providing historical information which also reduces the potential for fraudulent claims.

Syndicated Loans

Financial institutions are utilizing blockchain to automate syndicate formation, underwriting, and the disbursement of funds (e.g. principal and interest payments). Enterprise blockchain solutions can also reduce loan issuance time and operational risks.

Trade Finance

In trade finance networks, blockchain solutions are helping business entities digitally store KYC details and facilitate the real-time verification of financial documents, creating new, more efficient financing structures. Faster settlement times enabled by blockchain also greatly reduce counterparty risk.

Automated Compliance

In the future, the preparation of annual financial statements, such as the balance sheet, statement of cash flows, or income statement will be conducted in real time with the potential for real-time audits. This enables multiple breakthroughs in compliance and regulatory oversight.

This will enable tax collection to be faster and more accurate, which improves efficiency and reduces costs. Blockchain reports will include information on the financial position of a company which could be promptly released to issuers and investors. Automated compliance will reduce friction, reporting costs, and eliminate errors associated with manual audit activities.  

Additionally, blockchain compliance will increase corporate governance as it would allow information to be available in real time to board members and easily distributed to the proper stakeholders in a decentralized manner.

ConsenSys companies, such as Truset and Drum G are enabling information to reach investors without delays errors or intermediaries. Ultimately, regulators could also access important financial information on a real-time basis to ensure that any risks to the financial markets are detected faster and in a proactive manner.

Asset Rehypothecation

Rehypothecation is the process by which banks and financial institutions leverage assets that have been posted as collateral by their clients. In return for lending their assets to the bank, clients receive rebates on fees or lower borrowing costs. Enterprise blockchain solutions can track and manage asset rehypothecation. Ethereum smart contracts also enable the real-time enforcement of regulatory control limits and reduce settlement time.

Custody and Proxy Voting

Custody and proxy statements can be distributed via blockchain technology. Ethereum blockchain solutions enable counting votes via smart contracts which improve retail investor participation. Blockchain implementations can also automate the validation of votes and enable personalized analysis.

Enterprise Ethereum will also enable the issuer/company and the board of directors to have a clear understanding of how the shareholders are voting for each resolution. This is currently a grey area where there is little transparency about the actual concerns of shareholders. Often this process relies on a paper-based process which makes running annual general meetings expensive and complex. Blockchain will ensure that general yearly meetings can be run remotely rather than in person.

Equity Post-Trade

During the post-trading process, buyers and sellers compare trade details, approve the transaction, and change records of ownership. Blockchain and smart contracts have the potential to facilitate post-trade activities which can streamline processes and potentially reduce settlement times. Additionally, blockchain-enabled post-trade helps reduce counterparty and operational risk.

More Real-World Banking and Finance Applications

Santander's Cash Tokenization Utility

ConsenSys has collaborated with Santander Bank to develop a fiat-backed token on Ethereum. The system enabled real-time payment for domestic and international transfers. Payments were cleared, settled, and disbursed in 10–15 seconds.

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Project Endor

ConsenSys recently partnered with capital raising platform CapBridge on Project Endor. The goal of the collaboration is to develop a fully compliant securities exchange on the public Ethereum blockchain.

Adhara

Another ConsenSys venture, Adhara is building a multi-currency liquidity management and international payments platform. The Enterprise Ethereum platform enables smart contracts to optimize banks’ capital deployment, manage risk, and leverage liquidity effectively and globally.

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Enterprise Ethereum is the foundation for many industry blockchain use cases and case studies. For more ConsenSys banking and finance case studies, check out Project i2i, Project Khokha, Project Ubin and komgo. Find out more about blockchain applications in supply chainenergy, governmenthealthcare and sports.

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