Blockchain technology, best known for powering Bitcoin and other cryptocurrencies, has the potential to be a game-changer for supply-chain finance.
What is blockchain?
Blockchain is an unalterable digital ledger that allows multiple parties to transfer and store information securely and reliably. It’s thought that it could replace complex paper financial systems because it’s effectively a new way of storing and exchanging ‘value’.
Blockchain provides an accountability that traditional databases do not. It allows secure transactions without the use of a central authority, i.e. a bank. It is speculated that this is a ‘no risk’ method of transferring payment because there is no room for human error. This immutability, coupled with its immediacy and transparency, means that blockchain is heralding the new era of the truly digital financial marketplace.
How could it affect the supply chain?
It’s common for a letter of credit to be used to guarantee a purchase in a trade agreement between a buyer and a seller. This is cumbersome, has the potential for error, and means a financial intermediary must then go on to process the transaction. The process is convoluted, with individual companies all keeping their own separate ledgers. Blockchain is a way of centralizing this ledger, creating a near-automated, potentially infallible system.
Payments made via this digital system can be monitored by both parties, meaning that suppliers are no longer at a disadvantaged positon in the buying process while they wait for processing. Blockchain speeds up the process, giving the two companies more control, and in the long-term would ultimately create more robust supply chains – all for a portion of the cost organizations currently pay for their traditional invoicing systems. According to Santander, by 2022 this technology might cut costs by as much as $20 billion per year.
When e-invoicing becomes more commonplace, buyers will simply tell sellers that they need to switch to digital invoices – the growth of this infrastructure will be exponential as more organizations adopt this process.
How is this reflected in the industry?
It’s speculated that blockchain will take over real-world transactions in the not too distant future – it’s been forecast that it could happen as early as this year, with widespread use predicted for 2020.
The World Economic Forum estimates that 80% of banks are currently developing blockchain projects. This investment is starting to become visible in the finance industry: the world’s largest multicurrency cash-settlement system, CLS, is integrating blockchain with the foreign-exchange market, for example, and China’s UnionPay has started to use blockchain for loyalty programs across multiple banks.
But the beauty of this technology is that banks aren’t the only businesses that can utilize it – buyer-seller relationships permeate every industry – and it has particularly great potential for SMEs as it could revolutionize their (currently clunky and expensive) internal financial processes.
Industry giants such as IBM and India’s Mahindra Group are working on new blockchain solutions. Start-ups are also popping up to help bridge the gap to this new technology, such as blockchain-based financial operating network Fluent, which aims to streamline supply chain finance and is supported by $2.5 million in funding.
What are the wider effects of this transition?
Currently, it’s thought that blockchain is a ‘no risk’ situation – but in an industry as heavily regulated as finance, what does this mean for compliance? Will regulations evolve as the tech evolves, or will we see legislation grow more opaque only as the technology starts to become more pervasive?
And how will this digital technology affect the physical office? It’s likely that the introduction of blockchain will have a significant effect on the recruitment side of things. As well as streamlining the process by transferring a paper invoicing process into the digital realm, e-invoicing would also decrease the need for admin. From a staffing perspective, this would mean a more compact yet technically-minded team.
Here at Selby Jennings, we know how important it is to understand changes to the market and how they might affect your business. For a consultation on your current recruitment needs and how they might evolve in the future, get in touch today.
Selby Jennings is a leading specialist recruitment agency for banking and financial services. For more than 15 years, we have given clients and candidates peace of mind that the recruitment process is in expert hands. Our continual investment in best-in-class technologies and consultant training enables us to recruit with speed, precision and accuracy. Today, Selby Jennings provides contingency and retained search recruitment across 11 offices in 6 countries. Contact us to find out how Selby Jennings can help you.