Smart Contracts in Banking and Financial Services: A Qualitative Review of Applications, Risks, and Regulatory Perspectives
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Abstract
Blockchain and smart contracts are bringing a technological transformation to banking and financial service industry. This scholarly article evaluates the revolutionary nature of smart contracts in reinventing the concepts of trust, efficiency, and automation in transactions of diverse financial sectors. By using a qualitative and explorative methodology that uses secondary resources, the research integrates the know-how of academic publications, white papers, policy-related pieces, and case studies published since the year 2020. The results show that smart contracts are increasingly being used in trade finance, cross border payment, insurance claim settlement, credit release as well as compliance with regulations. Such applications have resulted in cost efficiency, transparency, auditability, and speed of operation being strengthened tremendously. Nevertheless, the paper also reveals some of the existing problems such as the lack of legal clarity, weaknesses in the coding of contracts, scalability of the blockchain technology used, regulatory compliance, and privacy. In practice, being used by institutions like JPMorgan and Santander and in DeFi platforms like Aave and Compound, smart contracts are increasingly becoming institutionally friendly. Also, legal and compliance agencies in different jurisdictions, such as European Union, India and United States, are developing infantile legal regimes that plan to control such innovations. This paper provides the conclusion that smart contracts have a potential to become the backbone of an automated, decentralized, and trusted financial world. To achieve successful integration, there must be a coordination between regulators, technologists, the financial institutions, and policymakers. The paper adds value to the academic discussion by offering a clear, detailed, practice-oriented view on the topic of how smart contract is changing future of banking and finance.