Blockchain in Finance: 8 Promising Use Cases Beyond Cryptocurrencies
The BFSI industry (banking, financial services, and insurance) remains the leader in blockchain adoption, accounting for 38% of the global blockchain market value. Historically, the lion's share of value generated by blockchain has been concentrated in fintech and cryptocurrency spaces. However, in recent years, blockchain has been gaining traction among traditional financial institutions as well. The global blockchain market for traditional BFSI is expected to grow tenfold, reaching $22.5 billion by 2026. The fast, transparent, secure, and cost-effective transaction processing enabled by blockchain is considered a key factor driving the technology's popularity among traditional financial service providers.
At first glance, the growth of the blockchain market in BFSI may seem counterintuitive given the recent sharp decline in cryptocurrency values and the overall volatility of the crypto market. However, financial companies should keep two important facts in mind:
- Blockchain ≠ cryptocurrencies.
- Blockchain also provides access to smart contracts, which can be used to automate a wide range of business operations, not just cryptocurrency transactions. Smart contracts, in turn, involve the use of cryptocurrency as a means of payment for confirming a transaction on the blockchain.
Thus, the growing adoption of blockchain—for automated digital identity verification, document exchange, or tokenization of securities, for example—drives demand for cryptocurrencies and helps the crypto market stay afloat.
Notably, many BFSI giants, such as JPMorgan Chase, Goldman Sachs, and Banco Santander, have already implemented blockchain for a wide range of general and industry-specific use cases. Their practices and success stories have spurred an industry-wide shift from using blockchain only for customer-facing services (e.g., accepting crypto payments) to leveraging the technology for improving internal business processes.
Let's explore the most prominent blockchain use cases in BFSI and see how this technology can enhance the efficiency of financial operations, boost employee productivity, ensure data security, and drive revenue growth.
Blockchain for Cross-Border Interbank Settlements
Applying blockchain in finance can dramatically increase the speed of cross-border settlements and reduce their cost by eliminating intermediaries—commercial banks, clearing houses, etc. The experience of major banks that have adopted blockchain for cross-border payments shows that the technology can cut transaction processing time from several days to a few seconds and reduce processing fees from 5–30% to 2–3%.
Note that in this case, cryptocurrency serves not as the primary payment currency but as a fiat-crypto-fiat bridge that enables cross-border transaction processing on the blockchain network.
Blockchain for Business Process Automation
Blockchain enables the automation of financial operations and record-keeping through smart contracts, allowing financial companies to boost employee productivity and achieve significant operational cost savings. The more complex and document-intensive the process, the more impressive the results of blockchain-based automation. For instance, when implemented in insurance claims settlement, smart contracts reduced costs by a factor of five and accelerated claims processing approximately threefold.
In fact, the terms of virtually any legally binding financial agreement can be formalized in smart contracts as rules that automatically execute specific business actions. The advent of proxy contracts has effectively solved the problem of smart contract upgradability. With proxy contracts, smart contract logic can be easily adjusted to reflect changing agreement conditions.
Blockchain for Financial Document Management
Financial document management is another important area where blockchain can benefit financial organizations. The technology enables end-to-end tracking of any user actions related to creating, editing, viewing, copying, and sharing financial documents. This ensures secure and transparent storage and exchange of financial documents, fostering trust between financial institutions and their clients.
Blockchain for Fraud Detection
The largest share of fraud risks faced by the BFSI sector comes from employees. In 2022–2023, nearly 52% of fraud incidents reported by Russian financial institutions involved internal personnel. Blockchain helps detect and prevent dishonest user behavior in a timely manner by providing immutable, time-stamped records of all business transactions and manipulations with financial data and documents. Automated fraud detection logic can be encoded in smart contracts, eliminating human involvement and ensuring incorruptible fraud checks. When paired with artificial intelligence, fraud detection can be fully automated with high accuracy.
Blockchain for Digital Identity Verification
The volume of identity theft has increased fivefold since 2017 and is projected to cause losses of $56 billion in 2024. This is pushing financial organizations to seek effective anti-fraud methods to avoid financial and reputational risks. Here too, blockchain proves to be a powerful ally.
With blockchain technology, unique client information can be represented as a decentralized identifier (DID) or an NFT, encrypted, and recorded in a tamper-proof distributed ledger. A blockchain-based repository of tokenized digital identities provides a single source of truth for customer identity verification while ensuring the complete security of sensitive personal data.
Blockchain for KYC/AML Compliance
Another blockchain use case for financial service providers is ensuring KYC/AML compliance. Automating compliance checks with smart contracts eliminates the labor-intensive and error-prone manual verification of customer identity against KYC/AML requirements. Blockchain's tamper resistance ensures the authenticity of data provided by customers to the organization, preventing unauthorized access to financial services.
Blockchain for Corporate Decision-Making
Given the complex management hierarchies in large financial organizations, decision-making for strategic business operations is not always straightforward. Blockchain streamlines collaborative decision-making and strengthens trust among all stakeholders in the organization. At its core, blockchain provides a highly reliable and incorruptible electronic voting model. With tokenized governance rights and algorithmic vote verification and tallying, financial service providers obtain trustworthy voting and enhance manager productivity and engagement.
Blockchain for Service Accessibility
Amid the global push for greater financial inclusion, traditional BFSI players must reach underserved populations and make their services accessible to people with the lowest incomes.
This is where DeFi excels and traditional finance lags behind.
DeFi's popularity is owed to blockchain's high accessibility. The technology enables easy, round-the-clock access to essential financial services without restrictions based on location or credit history. Traditional banks and financial service providers are not yet ready to fully transition to a peer-to-peer model. However, we are seeing a growing number of financial institutions adopting blockchain-based solutions or partnering with DeFi platforms to expand their customer reach and improve service accessibility.
Beyond the social aspect, BFSI companies are also guided by pragmatic considerations: entering the fast-growing DeFi market and reaching a larger customer base open up new profit opportunities and help diversify risks.
Are You Ready to Harness the Power of Blockchain?
For traditional financial service providers, blockchain may seem like an overhyped technology focused solely on cryptocurrencies and incompatible with their established internal processes. In reality, blockchain can be successfully applied in a variety of BFSI-specific use cases beyond crypto payments and investments. The technology has proven its real business value across diverse areas—from document management to fraud detection. Traditional BFSI businesses are gradually transitioning to blockchain, and decentralized financial solutions are likely to become commonplace in the near future.