Smart contracts are tamper-resistant and have self-verifying capabilities. Several industries, including the banking and finance sector, have started leveraging benefits from smart contracts. For instance, it is now easy to process insurance claims and KYC without errors. You can maintain transparency in the auditing process. Peer-to-peer transactions can become smoother.
Programmable smart contracts refer to an agreement between multiple parties. Transaction terms can be created as a protocol, which is present across a decentralized blockchain network. So, let us learn about smart contracts for payments and other financial activities.
Payments and P2P Transactions
Distributed ledger technology has removed the need for engaging intermediaries and third parties like agents and banks. Smart contracts for banks can replace the conventional players that perform different processes and approvals.
They can also lower the cost and complications related to transactions. Moreover, they can accelerate the transaction process, although there are traditional financial platforms working at high speed. They have special mechanics to show the transaction’s validity.
Today, several consumers have fiat accounts. Still, you can notice a shift towards cryptocurrency for peer-to-peer payments. It is highly advantageous in the case of international payments. You can avoid high charges for money transfers while using a smart contract payment gateway.
The potential to make transactions without third parties enables you to unlock different financial services.
The Mortgage Industry Getting Benefits from Smart Contracts
A complicated ecosystem is responsible for processing a mortgage. It is intended for the funding, origination, and servicing of the loan. In fact, loans are major drivers of growth and operational activities in the retail banking sector. A smart contract has been developed to increase the efficiency of internal processes and services. Shared access to legal documents, process redesign, and automation are major advantages of using the smart contract.
Mortgage lenders can anticipate 6% to 15% savings from document management systems, banking platforms, and Business Process Management systems.
Moreover, a smart mortgage contract can minimize the risk of delays. The process that covers 50 to 60 days can be accomplished in 4 to 6 days. Thus, you will find a higher processing speed and avoid the charge of paying escrow services.
Prevent Identity Theft in The Banking Sector
Clients’ identity comprises data on their security number, driving license, passport number, and location. Data points remain saved in centralized databases. When a hacker tries to access any document, he needs to deal with security flaws to snatch away client’s identity. Moreover, cybercriminals use customers’ identities to have financial advantages. On some occasions, criminals have stolen the identity of the deceased person to do illegal acts.
On the blockchain network, smart contracts provide a good solution, like an electronic signature. It can give access to both public and private keys. Private keys ensure access to public records and provide strong security. No one will be able to edit and alter data. But, a private key lets you access data, which is essential to your needs. Moreover, the combination of data encryption technology ensures the highest safety standards.
Transparency and communication in your finance industry
Smart contracts for payments let you analyze everything, ranging from account opening to daily transactions. Pre-defined terms and conditions can be recorded easily, and you can raise remittances automatically. Due to this innovative process, you can avoid laborious approval.
Banks and other financial organizations do not need to go through cross-checking and secondary validation procedures using a KYC smart contract platform for storing data. Mistakes can also be identified and solved without any delay.
Parties engaged in conventional contracts may maintain transparency. However, smart contracts are a more transparent solution. Due to this openness, you can trace transactions from their origin. The history of the transaction will also be automatically accessible.
Smart Contract for Transparent Auditing
Based on some relevant rules and regulations, conventional contracts used by the banking sector consume much time for recording paperwork. Record-keeping is the major reason for which you can find the trend of digitization in the finance and banking sector.
As banks provide loans and other services, it is essential to track daily activities. But, with cyber-attacks, criminals can easily manipulate important data which results in the leakage of information.
Smart contracts can be the best solution in this respect. Banks will be able to use bookkeeping tools in their blockchain network. Moreover, distributed solutions can be used in the network to refine the transparency level of the record. It enables banks to prevent account record infiltration and reduce the risk of fund loss.
Smart Contracts for Standardization And Automation Of Operations
You need to collect your client data every day. Social security numbers, addresses, and names- everything is needed for transactions. As the KYC policy standardization has achieved progress, smart contracts are useful for controlling operations and making agreements.
Thus, you will be able to apply a streamlined process by standardizing and coding the KYC workflow. There is no need to make a manual intervention, and your KYC system will be highly effective. You can find multilingual solutions using smart contracts and translation tools. Since smart contracts for retail banking reduces the need for applying manual strategies for every document, you can make decisions easily.
Understand The Risks Related to Smart Contracts
Although blockchain has a promising future and several business models will accept it in the future, this technology is young. DeFi provides you with a good opportunity to release a new product in the finance industry. However, it is important to have a solid concept of the potential risks-
- Improper contract structuring through inaccurate coding
- No strong cybersecurity protection technology to avoid hacking
Inappropriate use of contracts creates costs. Although Ethereum has alternatives to provide DeFi, it covers 80% of the current market share. Smart contracts rely on gas, which causes unintended costs. That is why the DeFi application is not an economical option. Some potential customers may not like to use it.
Amendments in legislation– Several governments have thought of imposing legal rules on managing the cryptocurrency market, and any adjustment can be done to deal with the contract settings.
Several organizations have already embraced blockchain solutions. They also know the importance of auditing smart contracts to mitigate potential risks. Highly professional smart contract auditors work on these smart contracts to detect anomalies and threats in the code.
You can look for the best smart contract development services. Smart contracts for payments can be the right solution for several companies in the finance sector. You can hire professionals to design smart contracts in the best way.
