Using Smart Contracts for Automated Financial Features, Like Debt Repayment

Using Smart Contracts for Automated Financial Features, Like Debt Repayment

Public debt continues to be a major economic issue that affects many Americans and individuals globally. In 2022, public debt was reported to have gone up to $30.01 trillion U.S. dollars, a rise of $2.23 trillion in the last year. 

Luckily financial technology has advanced to a point where it can improve debt repayment capabilities. This is possible through smart contract technology, which has the power to automate many financial features.  

Read more about smart contracts for financial automation, like debt repayment:

Financial Automation and Smart Contract Use Cases

Automation has the power to improve decision making, save time, and relieve stress and burdens. So it would only make sense to add this power into financial services. 

When it comes to expanding your financial features and offerings, businesses can now start to consider some aspects of financial automation. Financial automation has the ability to automate remittance, bill pay, sending money, and debt payment. Financial automation can operate in a number of ways. One way is through scheduled transactions, which require manual input. Another way is with blockchain technology or smart contracts. 

With the rise in the number of online payment transactions, financial automation makes sense and provides relief for outdated processes and high transaction volume. It also offers more financial inclusion.

Automation for the finance and accounting sector is expansive. Here are just a few:

  • Vendor invoicing and invoice processing
  • Accounting and financial tracking
  • Purchase order entries
  • Vendor or client onboarding 
  • Automated payments for orders
  • Payment processing and remittance
  • Debt servicing and repayment
  • Savings accounts and retirement funds contributions

What are Smart Contracts and How are They Used?

Smart contracts are currently one of the best ways to automate money sending. But what exactly are they?

Smart contracts are a type of automated legal contract that exists on distributed ledger technology (the Ethereum blockchain ledger). This automated contract uses the same (or similar) technology that blockchain uses but can act as a more guaranteed form of a traditional contract. 

It’s important to note that smart contracts aren’t stablecoins or cryptocurrencies with corresponding assets attached.

Instead, smart contracts work when two people enter into an agreement. Just like when two people enter into financial contracts, the smart contract has a set of agreement terms and execution guidelines. The key difference is that the agreement can only be finalized when the process to exchange goods and money is in place. For example, payment (in whatever form it will come) is guaranteed by way of public key, and the payment is automatically sent when the goods agreed upon (or whatever the agreement states) are delivered. 

This technology can allow a decentralized exchange for digital assets or automated transactions on a supply chain. And it makes sense because smart contract execution can only happen when the agreement can be fulfilled. It’s not like basic automation that exists in your online banking account where money transfers are automatically debited from your account based on a schedule. Instead, smart contracts look for the money first and then agree to move forward with the contract after that, and each time the contract should be fulfilled. 

Securing Financial Automation With Smart Contracts

As you can see, smart contracts for automated transactions make a ton of sense. While simpler automation tools can be used for automating invoices, it gets a little more complicated when you want to send money. 

Sending money itself is its own complicated process because of the sensitive nature of money. If you want to send money to a bank, then you have to provide the bank account, transit number and routing number. SWIFT numbers are needed for international transactions as well. All of this information must be protected and cannot be shared. 

When you want to automate something like bank to bank transfers, then there is a level of security that needs to be hit. And for things like sending money to your friends, it’s not possible at traditional banks. Instead, you would want to use blockchain-based smart contract technology for connecting that service securely.

Another way to think about it is as a self-executing contract that is also a binding legal agreement. The contracting parties agree to the contract terms when instating the automated contract, and the blockchain technology has the power to execute the contract terms.

While sending money through the blockchain network might sound risky, the use of the blockchain platform, smart legal contracts, and stablecoins are slowly being regulated and accepted by financial institutions in the U.S. So it would be wise to consider securing financial automation with smart contracts earlier rather than later.

Smart Contracts for Debt Repayment

When it comes to securely automating financial transactions, automation on a decentralized ledger provides the security that each party needs. 

Due to their secure nature on the blockchain, smart contracts do not reveal the identity of the issuer or receiver while still keeping a record of the transaction. This enables businesses to set up payment flows between consumers and multiple credit companies for a frictionless debt repayments funds flow. 

The flow can be controlled through your app and digital wallet, as was done by our client SLOAN. In the SLOAN app, users connect to the digital wallet and their debt servicing companies so that all of their credit card servicers, loan services, and debt services are in one central location (a crucial step to starting an effective loan repayment process). 

Then, the user brings money into the digital wallet account and their software is configured to repay the debt however the client requests. The money in the wallet is only issued when it is there, eliminating overdraft problems and NSF fees. All in all, the smart contract takes automation to another level. It automates the debt repayment process but it can also change when it notices that one card is paid off and alerts you to the situation before an issue emerges. 

Automated Finances WIth Sila

With smart contract technology integrated as part of a core Sila feature, it makes sense to partner with Sila for smart fintech features. Our users can easily build an app for automated financial features as our code has smart contract capabilities built in and the SILAUSD stablecoin available to automate money transfers in the app. 
If you’re looking to expand your financial features and provide automated debt repayment or another automated feature, then reach out to Sila today. Our engineering team can support your transition to the Sila app or help you build a new one!