In a new report, Capgemini adoption of blockchain-based smart contracts will lead to reduced risks, lower administration and service costs, and more efficient business processes across all major segments of the financial services industry.

Titled “Smart Contracts in Financial Services: Getting from Hype to Reality”, the report discusses benefits of smart contracts particularly in investment banking, retail banking, and insurance.

• Investment banking: Smart contracts could lead to shorter settlement cycles, which could lead to an additional 5% to 6% growth in demand in the future, leading to additional income of between US$2 billion and $7 billion annually.
   
• Retail banking: Smart contracts could lowering processing costs in the origination process in the US and European markets, thereby enabling banks to cut costs in the range of US$3 billion to $11 billion annually. Also, consumers could potentially expect savings of US$480 to US$960 per loan.
   
• Insurance: By enabling automation and reduced processing overheads in claims handling, smart contracts in the personal motor insurance industry alone could result in US$21 billion annual cost savings globally. Consumers could also expect lower premiums as insurers potentially pass on a portion of their annual savings to them.

Capgemini estimates that mainstream adoption of smart contracts is a few years away, saying:

“While mainstream adoption may well be at least 3 years away, financial services companies should not stand still. They ought to begin by identifying the changes that will be required, including to IT systems, processes and change management policies”.

According to the report, the “experimentation” stage is going on currently, which will run until 2017. In this period, several proof-of-concepts will succeed and implementation will gather speed. The “take-off” stage will cover 2018-2019 and will see the emergence of regulations and laws to bring blockchain and smart contracts under the purview of the law, along with an expected first in-production implementation of smart contracts by financial services firms.

The report says that the mainstream adoption of smart contracts will begin 2020 onwards. This stage will see the emergence of new products and services enabled by smart contracts.

In conclusion, the report said: “Smart contracts present an exciting, transformative opportunity for the financial services industry. However, as with all breakthrough innovations, organizations need to be careful about differentiating between what is hype and what is reality in the smart contracts space.”