Smart contracts will be implemented into practical and mainstream applications by the year 2020, according to a new report by the Capgemini’s Digital Transformation Institute.
In a report entitled, “Smart Contracts in Financial Services: Getting from Hype to Reality”, the French consulting company examines the key features of smart contracts and how they can transform multiple industries for the better. Most of all, the addition of this technology would save customers an average of $16 billion a year.
Smart contracts are electronic agreements conditioned to generate transactions and verification without the need of a third or centralized party. The decentralized network, Ethereum, has been receiving much praise for their design of smart contracts. Their layout has made it easy to adapt the technology into various applications due largely in part to its understanding programmed logic, multisig authentication, and escrow capabilities.
While focusing on the financial industry, the report highlights how smart contracts can change specific areas such as retail banking, insurance, and investment banking. The adoption of smart contracts will not only benefit the customers, but these organizations could see major savings and growth.
By implementing smart contracts, a large amount of paperwork would be eliminated. The technology would also reduce the time to process transactions, such as loan applications and insurance claims, to verify property ownership. All communication will be conducted through one platform allowing all parties involved to connect faster. When it comes to investment banking, trading settlements will be decided within a few days, as compared to the current 20 days or more. The electronic agreement will contain all the documents involved, such as confirmations and licenses, in order to process the settlement faster.
Banks and financial institutions recognize the potential smart contracts and blockchain technology will have for their companies. Banks such as J.P. Morgan and Bank of America have begun experimenting with Ethereum and smart contracts to execute faster and cheaper transactions. The Royal Bank of Scotland built a Clearing and Settlement Mechanism using Ethereum’s smart contracts because they believed it was the best platform out there to prevent any disputes with transactions.
Philippe Denis, Head of Corporate & Institutional Banking Blockchain Initiatives at BNP Paribas, mentioned he and his team have been looking into applications of distributed ledger technologies to see the big picture in using smart contracts.
Denis stated, “Now is the time to start experimenting with smart contracts in a sandbox environment. By 2017, we will begin to see early-stage contracts enabling practical use-cases and also a connection to legacy platforms. By 2019 we might even begin to see consumer adoption ramping up.”
Once people accept smart contracts in their banking and financial transactions, it will only be the beginning. It will only be a matter of time when this technology will revolutionize how we conduct all our everyday tasks for the better.