“Smart contracts,” computer programs that can automatically execute the terms of a contract, are no longer of interest solely to those in the cryptocurrency world, but have extended to traditional banks, according to Stefan Thomas, chief technology officer of San Francisco-based software company Ripple. While Thomas couldn’t speak about the auto finance industry specifically, he said that implementation of smart contracts can help lenders control regulatory costs and improve efficiency.
“When people refer to smart contracts, they are often putting two concepts into one bucket,” Thomas said, referring to automation and autonomy. “Automated processes can take much of the pain out of long contracts. For example, a contract may be hundreds of pages long, and regulators may inform a lender that they have violated the contract and owe a fine,” Thomas said. “In some cases, with paper contracts, it is cheaper to simply pay the fine than hire a lawyer to comb through, find the alleged violation, and formulate a response.” Because an automated contract is searchable, however, while it may be equally expensive to create, it is often far less expensive to execute, Thomas said.
Smart contracts can also continue to exist independent of the people who created them, he said — this is what he means by autonomy. “For contracts tied to longer services, or services that are not maintained by a single entity, smart contracts can continue to function as a connection,” he said. In the case of auto finance, the contract can maintain the financial link between a vehicle and its buyer, even if the loan has been sold or relocated.
Ripple is currently working with banks to integrate smart contracts into their existing infrastructures.
