Smart Contracts In Banking for Advancing Transformation

Published : May 10, 2018

The-underlying-potential-of-Smart-Contracts-In-Banking (1)

  • Enabled by blockchain technology or DLT (distributed ledger technology), smart contracts in banking can be considered as a boon for a lot of issues associated with conventional financial contracts, which have geared up for this digital age.

    Solely relying on physical documentation in banking leads to inefficiencies and delays as well as intensifies exposure to errors and fraud. While financial intermediaries provide interoperability for the finance system and reducing risk, they create overhead costs and expose to compliance requirements. And thus, there has been a rise in cases where banks (financial institutions could yield benefits from the adoption of smart contracts in their standard business operations. With the use of smart contracts in banking, not only banks can be relieved of the burdens of verification and the monitoring of data, but also can benefit from the reduced administrative costs.

    DLT (distributed ledger technology) and smart contracts could go mainstream. It is highly that banks start using these technologies by the year 2020.

    Smart Contracts In Banking


    Financial institutions offering mortgages can use smart contracts to save a fortune through decreased processing costs.

    Mortgages depend on the collation and verification of a property and financial data provided by the entities (parties). Further, this complex system adds increased costs and delays in the process. In this sense, smart contracts can help reduce the time and cost involved in the issuance of mortgage loans. It does so through facilitating automation, enabling access to additional sources of information like Land registry records and title deeds, and sharing access to electronic versions of verified physical documents between trusted parties. The saving can benefit customers from appropriate interest and lending rates, making homeownership affordable for everyone.

    Clearing and Settlement

    The possibilities to streamline banks and financial institutions' clearing and settlement processes through smart contracts are immense. Indeed, nearly 40 banks operating globally have realized the potentials. They are now participating in a consortium of blockchain. The consortium has tested smart contracts to assess whether they can help in clearing and settlement activity. And thus, many of those banks have already decided to pursue further their individual trials.

    Smart contracts can help tackle the onerous administrative task of handling approvals between participants. It does so by counting up the trade settlement amount and then sending the funds automatically. It happens once the transaction implanted within the smart contract gets approval.


    Blockchain-based smart contracts can propose plenty of benefits for an array of applications for banks. With smart contracts in banking, the latter can benefit from real-time, accurate, and verified transactions and lower costs.  However, they need to be accessible and comprehensible by businesses.

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