Blockchain Disrupts Finance: 10 Major Use Cases in Cross-Border Payments, KYC, Trade Finance, and More to Enhance Efficiency and Transparency.

Author: Charles Wilson

Translated by: Baihua Blockchain

Blockchain technology is not just a passing trend; it is fundamentally changing the way financial systems operate. With its decentralized, immutable, and transparent characteristics, blockchain addresses many of the challenges and trust issues faced by traditional banking systems.

Here are 10 significant ways blockchain is disrupting the banking and finance industry, including descriptions, real-world use cases, and specific data.

1. Cross-Border Payments

Cross-border payments are often slow and costly. Traditional cross-border payment systems (like SWIFT) typically require 2-5 business days to complete fund transfers through multiple intermediary banks, accompanied by various fees.

Blockchain eliminates intermediaries and services, enabling instant, low-cost global sending and receiving of funds.

Real-World Use Case:

Ripple has developed RippleNet and the XRP ledger to facilitate blockchain-based remittances at extremely fast speeds. Several banks have adopted Ripple technology to achieve cross-border transfers in seconds. For example, Santander, Standard Chartered, and PNC utilize Ripple technology to transfer customer funds across borders in just seconds instead of days.

Key Data and Facts:

The average cost of global remittances is 6.2%, and blockchain can reduce this cost to below 3% (World Bank).

• The cross-border payment market is expected to reach $250 trillion by 2027.
• Santander's One Pay FX (based on Ripple) has processed millions of instant transactions.

Did you know?

In addition to speed advantages, blockchain also provides greater transparency, allowing senders and receivers to view payment status in real-time.

2. Fraud Detection and Anti-Money Laundering (AML)

Financial fraud is a significant risk. The transparency and tamper-proof nature of blockchain make every transaction traceable, making it easier to detect fraud and nearly impossible to hide or alter evidence of fraud.

Real-World Use Case:

HSBC is a leader in the digitization of trade finance, improving AML efficiency through blockchain. In 2022, HSBC processed over $250 billion in foreign exchange transactions on the blockchain, significantly reducing manual risk processing.

Key Data and Facts:

Losses from financial fraud can reach up to $5 trillion annually (Crowe report).

• Compared to traditional methods, blockchain can reduce the AML false positive rate by up to 70%.
• Banks spend over $50 billion annually on compliance and fraud detection.

Did you know?

Smart contracts on the blockchain can automatically trigger alerts for suspicious transactions, automating AML compliance in real-time and eliminating outdated manual systems.

3. Simplified Customer Identity Verification (KYC)

KYC compliance is crucial but often repetitive and costly. Customers need to re-verify their identity each time they open a new account or register for a new service. Blockchain allows customers to verify once and authorize services as needed through decentralized identity management.

Real-World Use Case:

The UAE, in collaboration with the Dubai Department of Economic Development, launched a KYC blockchain platform that allows banks to securely share customer information, reducing customer onboarding time by half.

Key Data and Facts:

By 2030, the banking industry could save up to $10 billion annually through KYC cost reductions (Juniper Research).

• Customer onboarding time can be reduced from 3-5 days to just a few minutes.
• 80% of KYC documents can be reused across institutions via blockchain.

Did you know?

In the future, users will be able to control their digital identity wallets, choosing when to share on-chain identity information without needing to re-verify at every touchpoint.

4. Trade Finance

Trade finance involves a significant amount of paperwork and manual processes, which are time-consuming and costly. Blockchain digitizes trade finance, enabling automated documentation, instant verification, and tracking of goods and payments.

Real-World Use Case:

HSBC and ING executed a real-time trade finance transaction on the R3 Corda platform, reducing processing time from 5-10 days to less than 24 hours.

Key Data and Facts:

Paper-based systems still account for over $18 trillion in global trade finance.

• The World Economic Forum estimates that blockchain could reduce trade finance costs by 20-30%.
• Smart contracts can automatically execute letters of credit, reducing disputes among parties.

Did you know?

The World Economic Forum points out that blockchain has the potential to unlock $1.1 trillion in new trade opportunities for developing countries through digitized trade finance.

5. Syndicated Loans

Syndicated loans involve multiple banks providing loans to a single borrower, and the coordination process is lengthy and complex. Blockchain enhances efficiency by sharing documents (including agreements) and efficiently processing payments among parties.

Real-World Use Case:

Credit Suisse and ING completed a syndicated loan transaction on the Fusion LenderComm platform based on blockchain, reducing settlement time from 7-10 days to less than 24 hours.

Key Data and Facts:

The global syndicated loan market exceeds $4.5 trillion.

• Blockchain can reduce loan management operational costs by 20-50%.
• Loan servicing time can be reduced from several days to real-time completion.

Did you know?

Real-time updates and shared ledgers on blockchain eliminate delays and misunderstandings caused by back-and-forth communication.

6. Smart Contracts for Derivatives and Settlements

Derivatives involve multi-party agreements and complex conditions. Smart contracts allow parties to sign derivative agreements and automatically execute them when specific conditions are met, eliminating human error and increasing trust and reliability.

Real-World Use Case:

The International Swaps and Derivatives Association (ISDA) collaborated with several fintech companies to develop standard templates for smart contracts for derivatives, reducing settlement risks and disputes in the over-the-counter (OTC) market.

Key Data and Facts:

The notional value of the derivatives market exceeds $1 quadrillion.

• Derivative trade settlement times can be reduced from T+2 days to nearly instant.
• Smart contracts can reduce operational costs and legal expenses by 30-50%.

Did you know?

Smart contracts provide "atomic settlement," meaning simultaneous execution of financial contracts among all parties, significantly reducing default risk.

7. Asset Tokenization

Blockchain can divide real-world assets (such as real estate, artwork, stocks, etc.) into digital tokens, enhancing liquidity and providing broader access for global investors.

Real-World Use Case:

The Swiss SIX Digital Exchange has begun issuing tokenized bonds and plans to launch regulated tokenized equity products.

8. Real-Time Auditing and Regulatory Reporting

Auditing is often conducted retrospectively, and processing data can be time-consuming. Blockchain provides regulators and auditors with real-time access to transaction records, reducing fraud and compliance risks.

Real-World Use Case:

EY developed a blockchain auditing tool called "Blockchain Analyzer," providing real-time cryptocurrency transaction audits for clients like BitFlyer.

Key Data and Facts:

Financial reporting errors cost companies $37 billion annually (BlackLine).

• Real-time auditing can reduce internal audit workloads by 50%.
• Blockchain solutions provide transparency, traceability, and automated reconciliation.

Engaging Insight:

Imagine a world of real-time auditing, where notifications are received during transactions, eliminating year-end stress while improving regulatory oversight.

9. Central Bank Digital Currency (CBDC)

CBDC is a state-supported digital currency based on blockchain or distributed ledger technology (DLT), providing a secure, programmable cash alternative while reducing the demand for private cryptocurrencies.

Real-World Use Case:

China's digital yuan (e-CNY) has been used in cities like Shenzhen and Suzhou, with transaction volumes exceeding $250 billion.

Key Data and Facts:

Over 130 countries (accounting for 98% of global GDP) are researching CBDCs (Atlantic Council, 2024).

• The Bahamas, Nigeria, and Jamaica have launched CBDCs.
• Digital currencies can reduce cash management costs by 70-75%.

Engaging Insight:

CBDCs can enable programmable money, such as time-limited stimulus fund releases or automated tax payments, providing more control over monetary policy.

10. Decentralized Finance (DeFi)

DeFi is a rapidly growing blockchain ecosystem that offers decentralized alternatives to banking products, such as lending, trading, and insurance, without intermediaries.

Real-World Use Case:

MakerDAO, Compound, and Aave allow users to earn interest or borrow against cryptocurrency collateral, with smart contracts automating the entire process.

Key Data and Facts:

The total value locked (TVL) in DeFi soared to $180 billion in 2021 and remains above $60 billion in 2024.

• DeFi interest rates are 5-10 times higher than traditional banks.
• Over 5 million wallets have interacted with DeFi protocols to date.

Interesting Fact:

DeFi is not just a new concept; it is a revolution providing financial services to the 1.4 billion unbanked population worldwide.

Conclusion:

Blockchain is no longer an experimental technology; it is the foundational technology disrupting global financial infrastructure. As banks and regulators begin to embrace blockchain, the financial industry is moving toward a faster, cheaper, and more transparent future. For banks and the financial sector, early adoption is no longer an advantage but a necessity.

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