Blockchain-based smart contracts will transform the financial services industry, saving punters billions of dollars in fees for things such as mortgage applications and auto insurance, claims a Capgemini report.
While the concept of smart contracts has been talked about for decades, the rise of distributed ledger technology is finally making them reality, enabling scenarios where actions such as payments are automatically enforced as soon as agreed conditions have been met, without the need for independent verification and manual processing.
Capgemini says that this has the potential to cut settlement times and remove hassle, as well as save the financial services industry and their customers billions through lower operational and administration costs, as well
For instance, the report highlights the potential savings smart contracts could bring to the world of mortgage applications, which are currently cumbersome and high-fee. By cutting documentation about and applicant and the property, Capgemini estimates that the technology could reduce $4350 in loan processing fees by up to 22%, or $960.
Similarly, the complex motor insurance claims process could benefit if when claims arise smart contracts provide all the necessary details to the insurer and third party, triggering payouts. Insurers could save 12.5% by streamlining the process in this way and would probably pass on more than six per cent to customers in lower premiums.
Adoption is already underway, with banks and insurance firms banding together through organisations such as R3 and carrying out proof of concepts. Capgemini predicts that as regulations take shape, the smart contract revolution will be ready to take off by 2018, hitting the mainstream by 2020.
"Such is the potential of smart contracts to transform the industry and consumer experience, and so rapid is the timeframe we anticipate widespread adoption, those not already experimenting with the concept or considering its introduction are at risk of being left behind," concludes the report.