Skepticism over blockchain technology still exists, but treasury and finance departments are increasingly intrigued by its possibilities for safer and faster payments. AFP recently spoke to Leilani Doyle, senior vice president of product management with U.S. Dataworks, a speaker at AFP’s upcoming Annual Conference, about blockchain developments. Learn more about this session here and be sure to register for the AFP Annual Conference by September 16 to save $200.
Exchange: Why are we seeing more corporate interest in blockchain usage?
Leilani Doyle: Corporate practitioners are always looking at ways to do things better and faster. However, businesses continue to be restrained or constrained by traditional practices, regulations and outdated business models. Blockchain technology challenges these traditional models and has been proven to work in the context of the bitcoin virtual currency.
During the talk we will be giving at the AFP conference, Seagate Technology will share key points about their interest in using blockchain technology. Seagate is a company with $11 billion in revenues, and a significant portion of their revenue comes from international transactions. Seagate was looking for a technology and business model that would facilitate better, faster and transparent money movement between their international trading partners. Money being tied up for days due to the complexities of international transfers is a key problem the CFO of Seagate, Dave Morton is looking to solve.
Businesses in general are looking at ways that they can move away from the old paper-based, multiple layers, inefficient processes of the past, and adopt technology that was invented for the digital and global environment of today. When you, as a corporate practitioner, are looking at the opportunities a global economy presents, you quickly realize the need to be agile in order to compete.
Exchange: How are companies using blockchain?
Leilani Doyle: Companies are experimenting in a lot of ways. For example, certain internal uses are being explored for exchanging or securing private business documents. Blockchain is this immutable ledger the can preserve the history and integrity of a transaction. When you think about immutable ledgers, you might think about complex hashing totals that link one block of information to the next. Records cannot be inserted or removed without breaking the chain. The hashing total, which is the block, can contain any kind of documents, contracts, value units or data. The transaction is signed with the public key/private key pair. So you have a signed document that is stored in a permanent record that can't be changed, but can be accessed in a consistent way. The blockchain in bitcoin is a public blockchain and anyone can view the transactions, but a blockchain could be private or semi-private.
There are some pilots going involving stock transfer ledgers and shareholder voting. On December 15 of last year the SEC granted Overstock amended Form S-3 which could allow a subsidiary of Overstock to issues public securities leveraging blockchain technology. Patrick Byrne, the CEO of Overstock has revealed that this approval was a significant step forward in there move to launch a blockchain-based private and public equities trading platform – known as tØ.
Exchange: Your session is called Why Corporates Want Banks to Implement Blockchain. Why would they want an intermediary like a bank to implement blockchain? Why couldn’t they just do it themselves?
Leilani Doyle: You know, businesses need to focus on what they do best. For example, our company US Dataworks is very focused on Integrated Receivables and Payment Switching Networks. That is our area of expertise. We don’t want to be a bank, we want to rely on our bank to protect our cash assets, handled the clearing and settlement of payments and make domestic and international transactions easier. So even though our expertise is in the payments space, we want to rely on our solid banking partners for account and transaction management. Businesses that are in other industries also want to rely on their banks for this expertise so they can stay focused on building amazing products or delivering outstanding services.
It’s my perception that banks should take a leadership initiative in transformative financial technology in order to maintain their value to corporate customers. As you know, corporate customers are still the bread and butter for regional financial institutions. Banks listen to their customers’ request and implement new technology products when the business need becomes clear. There are many new innovations, like blockchain that banks can leverage to deliver new value-added services . Blockchain could be used to enable new ways of exchanging value (payments) and information (remittance documents or contracts) together in a single consistent method. This would facilitate new ways of bringing business parties together for international trade and commerce. Corporates want to do what they do best; they want to let banks help them understand how to conduct safe, secure commerce transactions.
Exchange: Is there anything new in blockchain technology that has come along in the past six months or a year? Do you see anything promising coming down the pike in the next six months to a year?
Leilani Doyle: I definitely see, one, more international commerce transactions are coming. Ripple Labs, which specializes in using blockchain technology for international payments, added seven new partner financial institutions over the summer. These include ATB Financial, the Canadian Imperial Bank of Commerce (CIBC), National Bank of Abu Dhabi (NBAD), Reisebank, Santander, UniCredit and UBS. However, exactly how each bank plans to use the Ripple Labs blockchain technology has not been disclosed.
The R3 group recently released the Corda whitepaper, which provides a non-technical explanation of how blockchain represents a once in a generation opportunity to transform data management across financial transactions. Ethereum went live with their version of blockchain in June of 2015. Current business use cases for Ethereum vary, but include the crowd source financing of an independent movie called The Pitts Family Circus. I think we will also see extended usage for stock transactions, whether it’s shareholder voting or some new kind of stock exchange.
Since I focus more on the payments side of blockchain uses, I see that it is really for bringing together groups of people or organizations that may not have a formal relationship. Blockchain can be used for a central source for transactions without requiring a single governing or controlling organization. It’s sort of social in nature. Checks and balances are built in to control authenticity of each transaction and of the entire blockchain, not by a governing body but by its own construct, and by the usage of the blockchain. It’s really good for bringing together parties that don’t really know each other and facilitating payment transactions.
Blockchain is not so good for doing high volume, rapid transactions. The sheer time and effort involved in conducting a blockchain transaction does not make it useful for doing very high volumes of payments or very rapid point of sale transactions. I’ve heard talk about potential uses for micropayments, which are not practical in today’s payment environment because of the cost of the payment transaction. And while this may prove to be true, I really don’t see micropayments as being a compelling use case for at least the initial product developments. The cost for development would far outweigh any near term benefit.
One thing is for sure, it is going to be an interesting three years when it comes to fintech and blockchain innovation.