Three use cases of Smart Contracts in Financial services
Savings and upsides from decreasing syndicated loans settlement time
While the High-Yield Bond transactions are settled in more than three days, the settlement interval for leveraged loans frequently extends to almost 20 days. This creates increased danger and a liquidity challenge from the leveraged loan market, hampering its growth and attractiveness.
Since 2008, the global loan market has witnessed negative gain, whereas the High-Yield Bond market grew by 11 percent. We assume that smart contracts can reduce the delay in procedures such as documentation, buyer and vendor affirmation and assignment arrangement, and KYC, AML and FATCA checks, with the assistance of a permissioned ledger. With estimation that with the decrease in settlement times, if the rise of loans may be at least half that of their High-Yield Bond market growth (i.e. between 5 percent and 6%), it would amount to an additional $149 billion of loan demand on the industry. Such loans generally carry 1% to 5% of fees, translating into extra income of $1.5 billion to $7.4 billion to investment banks. In addition, operational expenses, regulatory capital requirements and costs related to delayed compensation payments throughout the settlement of leveraged loans will probably be decreased together with the shortening of the settlement cycle.
Read more about basic idea behind Ethereum and Smart Contracts here.
Mortgage business to benefit from adoption of smart contracts
The mortgage loan process is dependent upon a intricate ecosystem for the origination, financing, and servicing of the mortgages, including costs and delays. Smart contracts could reduce the price and time involved in this process through automation, process redesign, shared access to electronic versions of bodily legal documents between trusted parties, and access to external sources of information such as land records.
Our earlier study on banks back-office automation suggests that mortgage lenders may expect savings between 6 percent and 15% from business $149 billion added leveraged loan volume increase with a reduction in settlement times 11 client fills mortgage application with earnings, taxation and property details Are property documents valid and lien status in order? Reject loan application and inform the client credit mortgage accounts article verification of earlier measures calculation of the cost savings possible from the usage of smart contracts in the US mortgage sector register bank’s lien on land signatures confirmed and mortgage accounts generated customer signs the mortgage document in addition to the witness mortgage record created approved rejected credit history id check KYC & AML check check income and land LTV reject program and notify the customer mortgage adviser creates loan workflow and updates credit, id, KYC, AML information in bank’s loan workflow for mortgage origination predicated on sale of 6.1 million houses of which 64% are being marketed on mortgage mortgage loan origination cost for an average loan of $200,000 in the US (2015), minimum savings US$ 4,349.5 17 billion 396.3 (9.1%) 1.5 billion 1,528.4 (35.1%) 6 billion. These numbers, coupled with our experience and discussions with industry experts, helped us estimate anticipated savings for each of the processes involved in loan origination. For example, in the US housing market, almost 6.1 million homes were sold in 2015. Based on historical averages, 64 percent of them were bought by home owners with a mortgage. We estimate that minimal savings of $1.5 billion could be achieved by loan providers through the automation of tasks in their organizations. Further, economies of $6 billion could be achieved once external partners such as credit scoring companies, land registry offices, and tax authorities become accessible over a blockchain to facilitate faster processing and reducing costs.
We also estimate that loan clients could expect a 11% To 22% drop in the entire price of mortgage processing fees billed to them if smart contracts are adopted. The total of outstanding mortgage loans across the united states and European Union countries in 2014 was valued at $20.98 trillion. Based on the US mortgage market case, smart contracts may possibly save between $3 billion and $11 billion in the new mortgage origination process across the US and EU.
Claims processing cost savings at the motor insurance industry
We consider that, in the motor vehicle insurance industry, smart Contracts that bring insurers, clients and third parties to a single platform Also, third-parties like chargers, transport providers and hospitals — once They are part of the dispersed ledger — will be able to supply faster Support against promises to clients and can anticipate quicker settlement of claims. The united kingdom motor insurance industry dropped 3.7 million claims and spent $13.3 Billion in claim expenses and costs. We calculate that roughly $1.67 Billion, or 12.5 percent of their overall costs, might be saved by adopting smart contracts. Dependent on the United Kingdom motor insurance market, we estimate that each year $21 billion could be spared from the global motor insurance industry via the Usage of smart contracts. A portion of savings can be passed on to the Clients via reduced premiums on motor insurance policies. We estimate that the Cost savings amounts to a reduction of $90 on average on each premium payment In the event the insurers pass on each of the savings generated from smart contracts Adoption to customers, and $45 per premium in the event the insurers decide to pass On only 50 percent of economies.
