Top 9 Use Cases for Smart Contracts in Financial Apps

old-cash-register

Smart contracts are a great option to consider for programming money. They offer security and can’t be hacked by default. Self-executing, self-verifying, and tamper-defying technology ensures that operations proceed as they should. Fintech companies reduce the effort required to get a loan or set up investments by implementing technology into smart contracts.

In addition, KYC processes in your business can be made simple with better strategies and newer technologies. Also, you can see which content is being used or edited to make sure there’s no breach of privacy.

In this article, let’s talk about how smart contracts are changing the fintech industry for the better, the benefits they bring, and the top 9 smart contract use cases.

What is a Smart Contract?

Smart contracts are self-executing contracts based on blockchain technology with the necessary information/terms directly encoded between parties.

A smart contract is a computer protocol that digitally facilitates, verifies, or enforces the negotiation or performance of agreements. Smart contracts allow for an agreement to be carried out among different parties without any third-party intermediary.

These agreements are written in computer code that can be executed when certain conditions are met.

These have the potential to replace manual banking processes. Fintech companies can use it to ensure compliance, evaluate loan eligibility, and create insurance policies.

Safe and completely reliable – these contracts run on blockchain technology. This makes them perfect for any transaction where security is essential.

What are the Purposes of Smart Contracts?

Smart contracts create a more secure and transparent environment for transactions. They are stored on a blockchain and executed when certain conditions are met.

A smart contract is a piece of code stored on the blockchain and is resistant to outside tampering. One of the best features is that they are more secure and transparent than traditional contracts.

You can apply smart contracts to various industries, such as healthcare, banking, insurance, supply chain management, real estate, and law enforcement. Their use cases are numerous, and they have a wide range of potential. This makes them perfect for fintech companies because it now takes less time to transfer money between two parties, and the cost of doing so has also decreased.

What are the Main Functions of a Smart Contract?

Smart contracts are agreements that execute automatically when certain conditions are met. They don’t have to be ratified by a third party, so the parties can negotiate in real-time and exchange anonymous assets easily.

  • Compliance and control happen automatically, without anyone being involved in the process. Smart contracts are entirely self-executing. They operate independently to be relied upon for multiple transactions for businesses.
  • Smart contracts provide better security with no third parties and an immutable ledger.
  • They automatically source external data, so they don’t rely on the accuracy of the information given to them.
  • The resolution process is much quicker, which saves both time and cost on a business’s part.
  • The execution of smart contracts is free, which means there are no extra fees incurred on the user other than financial transaction fees.
  • Because all content is tracked, they remove any trust issues for moving or storing digital assets
  • Smart contracts have plenty of merits and reduce the need for complicated, time-consuming processes.
  • Digital signatures are used to verify identities and contract participation. They provide a level of authenticity needed for large deals involving high sums, and other financial services such as trade finance and real estate.
  • Blockchain technology ensures that your data remains private.

Top 9 Use Cases of Smart Contracts in Financial Apps

Smart contracts have been around for a while, but recently they’ve become more popular because of blockchain technology. They are safe and efficient and can be applied to a wide range of uses, including:

1. Real-time Remittance

More businesses and people are using digital modes of payment now, which has led to an increase in demand for a reliable remittance system. Blockchain-based smart contracts streamline payment processing allowing for real-time payments of funds to be securely transferred each time transactions are made. The accuracy and transparency of this method are also a plus point. Smart contracts can create and verify transactions to be processed quickly and efficiently.

2. Financial Data Recording

When a company collects financial data, it is crucial to create contracts to protect it. Databases are a cost-effective way of storing and maintaining business information. They’re useful for people running a business, for example. Smart contracts make it easy to store information consistently and securely, cheaper than auditing or hiring digital teams.

This will save you money on accounting by cutting down on manual input and outsourcing. You can use a smart contract database to record information and digitize real-world assets. Smart contract databases can record and renew information on the database according to predetermined parameters. These things can be done automatically, a real-life example of smart contracts.

3. Reduced Transaction Costs

Blockchain can make it cheaper, faster, and better for business. It’s also said to create smart contracts, which might lead to various new features and functionalities.

4. Efficient Peer-to-peer Transactions

Fintech companies understand that customers want to access their accounts faster, which is why smart contracts are an attractive option.

Smart contracts are written agreements that use the DLT (Distributed Ledger Technology) to get rid of third-party interactions and make international transactions faster and safer by acting as a middleman. They are easy to use and provide stability.

5. Supply Chain Management

Some fintech companies use blockchain smart contracts to improve and streamline supply chain management. For example, businesses can utilize smart contracts to track each product in a supply chain and allow businesses to manage inventory. This detail provides greater transparency for the company and its followers. Smart contracts also reduce the risk of fraud or theft, leading to peak efficiency for businesses.

6. Beneficial to Businesses and Their Clients

Both fintech developers and their customers can benefit from implementing smart contracts. Many fintech companies relied on a third party, such as a bank or other financial institution, to process transactions, which took time and effort manually. New technologies make it easier for banks to streamline processes, comply with regulations, and provide a better customer experience.

7. Faster Processing Times

One of the key benefits of smart contracts is that they can save you time by automating processes. For example, you could use smart contracts to make your banking or financial operations more efficient.

8. Efficient KYC Processes

KYC (Know Your Customer) is an essential aspect of the financial service industry. Banks and financial institutions have a strict and lengthy set of verification procedures that need to be completed to provide services. Smart contract systems can make it easier for fintech companies to carry out transactions that submit and verify identities.

9. Rental Agreements

Once the lease has been signed and the payment processed, your rent payment will be triggered from the smart contract entry. All receipts will be digital, and once a transaction has been completed (such as the termination of a lease), the document is deleted. It also ensures that nothing can be modified without the other party being notified.

Conclusion

There are many reasons to use the blockchain. The best case scenario is for people who need to make payments daily. Using a smart contract provides more security and better functionality for long-term transactions. Smart contracts are digital contracts operated on and enforced by the code. For example, they can be managed on decentralized finance networks like Bitcoin blockchain or Ethereum blockchain.

Blockchain development allows two parties to verify legal agreements through a secure, private network. The software will execute commands to manage the agreement if a ruleset is implemented. A smart contract is an automated code that can run on a blockchain. At its core, a smart contract can avoid the risk of financial disputes and make transactions safer.

Many people question the value of smart contracts, but the truth is that they are becoming more reliable and prominent. With smart contracts that minimize fraud and expedite services on the rise, fintech companies and their clients will be a lot happier.

Sila provides banking and payments infrastructure services for teams building the next generation of financial products. With our banking API, you will now have access to a powerful sourcing tool that can help you keep up with the competitive market. Working with legacy systems can be tricky and involves high legal costs. Sila takes care of this for you, saving you money, time, and effort in the process.