LONDON -- The focus of the ACT Cash Management Conference shifted to technology on Day 2, with an opening panel on—what else?—blockchain. Panelists looked at how it could disrupt the financial system and the potential benefits it offers to corporate treasury. One panelist even theorized that blockchain technology could save treasurers billions of dollars in reduced trading costs.
The session began with a quick audience poll of whether blockchain technology is revolutionary. Fully 68 percent said they don’t know, while 23 percent said yes, and 9 percent said no.
Moderator Tim Pyecroft, director, head of global corporates UK cash management for Barclays, began by noting that corporates and banks in general are still figuring out how to incorporate blockchain into their businesses. He drew parallels with the early days of the internet in the late 1990s, in which businesses gradually began to realize that they needed an online presence. “Blockchain is a very exciting technology that needs to be used in the right way to realize the benefits,” he said.
For attendees not in the know, Pyecroft described blockchain as a “secured spreadsheet” that sits in the cloud that multiple parties can review. “Each of the transactions that are a part of it are guaranteed by a set of cryptographic keys,” he said. “All of those transactions are stored in one database. It’s the mechanic that bitcoin uses. Looking at bitcoin, what [blockchain] does is, it allows a movement of value between counterparties without having the need to trust, because that’s built into the mechanism. And you don’t need a third party centrally to do that.”
Pyecroft noted that there are four key aspects of blockchain:
Data immutability: Blockchain allows for a complete record over time, which is guaranteed by the previous blocks of data “chained” together.
System resilience and speed: Blockchain allows for real-time movement and settlement.
Transparency and consensus of the data: Blockchain provides for shared, agreed data.
Automated logic: Blockchain provides for the ability to automate logic and build that into the database so it can be executed once you have consensus.
While it has been widely reported that banks en masse are exploring how they can use blockchain to their advantage, it’s still largely a gray area for many corporates. Pyecroft asked the panel how blockchain could specifically benefit corporate treasurers.
John Rowland, executive director of Cicero believes that blockchain does have potential benefits for treasury. “I’m thinking particularly about liquidity in markets, especially under stressed conditions,” he said. “If you need to know what your position is and how quickly you can provide liquidity to your company or to the market—that’s very important and potentially blockchain does help that.”
Rowland added that all treasurers are under pressure to reduce costs. “So if your bankers are providing what they’re providing at lower costs, either hidden or explicit, I think that is always a help,” he said. “If we can cut billions of dollars out of trading costs, that can only be a good thing.”
Colin Tyler, chief executive of ACT, believes that treasurers should be holding conversations with their CFOs and CEOs about the impact blockchain could have on the company’s business strategy, as well as its financial strategy. “Normally, treasurers only ask the questions about financial strategy,” he said. “This change that’s coming down the track is going to be disruptive to business.”
Tyler believes that corporates who don’t adapt to this change run the risk of being left behind. The change might not be here yet, but it’s coming, and treasurers need to take the long view on it. “We always say fund early and fund long—this is think early and think long,” he said.
Clive Cooke, securities executive, R3, noted that any system that includes transparency and efficiency should have a good impact on treasury. He noted that as blockchain catches on, one new concept treasurers will begin to hear a lot about is the “smart” contract, in which lawyers and accountants essentially act as coders. “When two parties enter into a transaction together, the accountant/lawyer/coder inputs into the blockchain what the event you’ve all agreed on, is,” he said. “This event will occur automatically.”
Cooke explained that when something is due on say, November 14, a smart contract will send a message to the treasurer that an action is about to be taken. “It will say that there is a dividend, a payment, etc. due today, and it will do it, and it will send that information to everybody that’s a party to that information,” he said. “Then it will pop back down again and it won’t be seen again until the next event occurs. So you’re going to hear a lot more about smart contracts.”
Ben Zevenbergen, research assistant, Oxford Internet Institute, is of the opinion that the majority of individuals currently developing blockchain technologies don’t understand financial world at all. “They’re against it; they’d rather not have a financial world. I think that’s a recipe for failure,” he said.Therefore, Zevenbergen sees an opportunity for treasurers to join this development process. “Speak to the people developing this and make it work the way that it works for the financial world and not just the technologists,” he said. “Get involved now; don’t wait for a year, because this is a year of development that you’re not going to get back.”