Introduction
This brief examines the potential positive use cases in which the crypto and blockchain ecosystem could benefit consumers, businesses, and financial intermediaries. There is considerable potential for improvement, because the current financial system is complex and inefficient, relying on a complex web of financial intermediaries utilizing inflexible legacy technologies. The three positive use cases that are particularly relevant to financial services are:
- Easier digital identity verification and data privacy:
High compliance costs incurred by financial institutions – namely, complex internal operating systems and processes – prevent them from meeting Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements. - Low-cost, timely, secure, and scalable payments:
The current payments regime could be improved from a cost, speed, safety, and transparency standpoint. - More inclusive and efficient financial services through decentralized finance (DeFi): DeFi could improve access to financial services for the unbanked and underbanked; broaden investment opportunities through fractional ownership; increase the efficiency of capital markets activities, as by reducing the high costs of record keeping; and improve the efficiency and resilience of the operational infrastructure of financial intermediaries.
These use cases provide practical examples of how digital finance has the potential to transform the financial services industry in a positive way. They also force incumbents to rethink and reconfigure their operating models – thus improving their services, showing the potential of digital finance in positively transforming the financial services industry. This underscores the need for lawmakers and regulators to protect consumers, investors, and the overall financial system through guardrails that can support, rather than stifle, economic transformation.
