Blockchain gurus believe that the technology will revamp payment systems and even the capital markets. But for corporate treasury professionals, the biggest impact may be in more mundane activities, such as record keeping and information sharing.
Financial institutions have been testing blockchain for a few years in areas including international payments and syndicated loans, and corporates too have been testing the technology. The applications the latter have explored may be less headline-grabbing than those involving the transfer—and possible loss—of money. As companies explore its possibilities, however, the technology may impact them more profoundly, facilitating access to critical information and making the organizations more efficient. The extent of those benefits remains unclear, but according to IT services giant Cognizant Technology Solutions, the technology is poised to have a major impact on many organizations in the long run.
“We ran a survey last year of more than 3,000 participants across a wide variety of industries—more than half were banks—and more than 85 percent agreed their companies would be impacted by blockchain,” said Lata Varghese, head of blockchain and distributed-ledger-technology (DLT) consulting at Cognizant.
The financial industry has been at the forefront of exploratory efforts through initiatives such as R3, which has sought to apply DLT to complex transactions. In part, that’s been driven by self-preservation. Varghese noted that sending a payment to buy stocks typically passes through seven or more intermediaries, including the broker, and clearing and settlement agents. Using a single distributed ledger to share data is much more efficient than passing it from one organization’s ledger to the next. And it should also be more secure if that data is encrypted, so that a change to one block of data necessitates changing the subsequent ones, and the chain is monitored by members of the blockchain network.
“[Financial] intermediaries are seeing a potential threat, and where there may be seven intermediaries today, blockchain may eliminate two or three,” Varghese said. “And those that remain will probably use this technology to get more efficient.
Corporates, which use SWIFT indirectly through their banks and in some cases connect to SWIFT directly or through a service bureau, will benefit from more efficient, less costly payments. Meanwhile, Credit Suisse and other banks are exploring the application of blockchain technology to debt issues, and earlier this year, the State of Delaware began analyzing its application to stock ledgers, initiatives that will enable corporates to better communicate with investors.
PUTTING THE TECHNOLOGY TO WORK
Perhaps the biggest impact blockchain technology will have on corporates, however, will stem from initiatives they are pursuing. Cognizant notes a wide range of nonfinancial companies exploring ways to put the technology to work. Varghese said their initiatives, as well as those pursued by financial institutions, remain in the pilot stage, and scaling them for wider use will likely remain elusive until various legal and technical issues are resolved.
Nevertheless, according to Cognizant, industry leaders such as Walmart and BHP Billiton, the world’s largest mining company, are starting to use blockchain technology to monitor their supply chains, creating auditable records and proving authenticity. Meanwhile, Cargill announced late last year that its network of farms will use a blockchain-based system to enable consumers to view the histories of the turkeys they buy. Cargill has also joined major cotton producers including Calcot, Parkdale Mills and Olam International, to form a blockchain consortium to create a supply chain and trading ecosystem.
The list of corporates exploring blockchain possibilities is continuing to grow, and Cognizant sees several areas where applying the technology could provide significant benefits, including triple-entry bookkeeping, a managerial accounting platform for subsidiaries, and monitoring the supply chain.
Last fall, Equidato Technologies launched SophiaTX, an open-source platform for developers to apply blockchain technology to core business software, such as enterprise resource planning (ERP) applications and related applications including treasury management systems (TMS). Equidato’s executives declined a recent request to update the platform’s progress.
It is still too early to know which blockchain initiatives will prevail. The significant infrastructure that must still be built to support blockchain networks is one of many challenges that must still be overcome, Varghese noted. “Today, it’s still difficult to make a business case to invest in the technology, if the benefits won’t arrive for several years,” she said. “No one knows who the winners will be in terms of today’s initiatives.”
Nevertheless, Varghese added, companies are starting to make serious investments in the technology, often for strategic reasons, and they will have a bigger influence on how networks are forms and network rules are written. In Cognizant’s view, she added, the risk of doing nothing in the space is greater than failing on the first attempt, given the extent to which the new technology is likely to change businesses.
“People are actually leaning in and seeking to use the technology for what it is best suited for, and as the technology gets hardened, we will definitely see more adoption of it and possibly some entirely new business models,” she said.