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So-called ‘smart contracts’ work similarly to standard written contracts in serving as a legally binding agreement based on a set of agreed terms and conditions. Where smart contracts differ is that they are electronically programmed and based on distributed ledgers such as blockchain technology, meaning they can automatically enforce actions like payments as soon as the agreed conditions have been met, and without the need for independent verification or manual processing. For instance, when buying a house, instead of the current process involving heavy documentation and manual intervention, details would be shared in a permissioned ledger smart contract network1 connecting all parties in the system. This would simplify the loan process, drive down processing charges, and result in a speedy transfer of property title to the consumer. Subsequent disbursement of loan amounts and interest payments would take place automatically as per the terms encoded in the smart contract.
While smart contracts could be used in a wide range of scenarios, the report, “Smart Contracts in Financial Services: Getting from Hype to Reality” focuses on the financial services industry, where contract technology and systems underpinned by blockchain are already in development by many major institutions such as BNP Paribas, Deutsche Bank, and Credit Suisse. It details three major areas where smart contracts are anticipated to have a significant impact for both consumers and organizations:
The broad applications of smart contracts within the financial services industry and the potential benefits to consumers have led many organizations to explore them as a matter of priority. Philippe Denis, Head of CIB Blockchain Initiatives at BNP Paribas, said: “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.”
Meanwhile, startups built around the idea of smart contracts are thriving. Louis Stone, Managing Director-Head of Business Development, Symbiont: “Two years ago Symbiont was started to show the transformative potential smart contracts could have on financial institutions and capital markets. In a short space of time, having proven the success of several use cases involving smart securities and syndicated loans, we’ve seen huge interest from the industry in exploring and adopting smart contracts.”
Amol Khadikar, lead blockchain researcher at Capgemini’s Digital Transformation Institute, said: “Contracts have largely escaped the digitization of financial services, leading consumers to bear the financial brunt of manual, antiquated processes. We’re at a point where distributed ledger technology can, and will, drive a revolution in contracts. This will hugely benefit the industry to reduce risks, cut costs and enhance operational efficiencies. Consumers would benefit, not just financially, but also from processes that are simpler and free of many of the hassles of today’s customer experience.”
Please read the full report: https://www.capgemini-consulting.com/blockchain-smart-contracts
The Digital Transformation Institute is Capgemini Consulting’s in-house think-tank on all things digital. The Institute publishes research on the impact of digital technologies on large traditional businesses. The team draws on the worldwide network of Capgemini experts and works closely with academic and technology partners. The Institute has dedicated research centers in the United Kingdom and India.
With more than 180,000 people in over 40 countries, Capgemini is a global leader in consulting, technology and outsourcing services. The Group reported 2015 global revenues of EUR 11.9 billion. Together with its clients, Capgemini creates and delivers business, technology and digital solutions that fit their needs, enabling them to achieve innovation and competitiveness. A deeply multicultural organization, Capgemini has developed its own way of working, the Collaborative Business ExperienceTM, and draws on Rightshore®, its worldwide delivery model.
1A permissioned ledger smart contract system allows the participants to agree on who can create, transact, validate and view smart contracts. This is done using rules and permissions granted to the participants in the system in advance. For instance, banks can be granted rights to validate transactions; and regulators can be granted access to view transaction details and so on.
2KYC: Know Your Customer , AML: Anti-Money Laundering, FATCA: Foreign Account Tax Compliance Act
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