Blockchain based smart contracts could save financial services billions, but industry-wide breakthroughs for the technology remain years away.
Plenty of attention is being paid to blockchain technologies and the potential benefits its use could deliver to FS organisations, but there are differing opinions on when this will actually happen.
One of the areas that it could significantly impact is that of smart contracts, most recently with Capgemini saying that it could save customers billions of dollars in fees.
A smart contract would help to create the scenario where payments are automatically enforced as soon as the agreed upon conditions are met, essentially removing the need for independent verification and manual processing, so saving time and importantly money.
The consultancy firm highlights one of the areas where smart contracts could be used and the potential savings it would bring. The area of mortgage applications, which is steeped in documentation, could see a $4,350 loan processing fee reduced by up to 22%.
Car insurance claims are another area highlighted where a 12.5% saving could be made by streamlining the process, something is estimated to pass on a more than 6% saving to customers in lower premiums.
Although some adoption is underway, most notably with organisations such as R3 carrying out proof of concepts, an industry-wide breakthrough in the near future seems unlikely.
At least that’s what research from SIX Securities Services seems to suggest with its poll that found breakthroughs aren’t expected for at least six years.
Despite 32% developing a proof of concept and 18% piloting a specific product or service, the consensus is that the average estimated time for blockchain to be widely implemented will be six years.
Blockchain is a type of distributed database that stores a permanent and tamper-proof ledger of transaction data.
The databases consist of two types of records, individual transactions and blocks, which are all collections of data pertaining to the transactions within a set time period.
Unsurprisingly many of the respondents believe that blockchain will have a big impact on the areas of settlement (38%) and clearing (34%).
Thomas Zeeb, CEO of SIX Securities Services said: “A lot of the conversations we are seeing around blockchain are on the technical level, looking at what is feasible with blockchain rather than what is desirable from a business standpoint.
“Blockchain has the potential to make a number of business models and intermediaries obsolete, which isn’t necessarily a bad thing. It is however important to question the changes that this would bring to the ecosystem.”
While the predicted benefits are clear, there are very few large scale production examples of blockchain technology being used by a major FS organisation, if any.
The Capgemini report said that due to the potential of smart contracts it is expecting widespread adoption, warning that those not already experimenting are risking being left behind.
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