Key Points
  • Blockchain’s deployment in several finance functions, including payments, can be crucial to the department’s transformation strategy

  • However, despite the benefits, companies have been slow in adopting blockchain

  • Implementing blockchain successfully requires internal and external preparation

According to PwC, even the top performing finance teams cost a business 0.55 percent of their total revenue. The cost increases significantly for average and low-performing teams, with top performers operating at 36 percent lower costs than average performers. Transforming the finance function, therefore, has naturally been a top agenda for Chief Financial Officers (CFOs).

Some of the key challenges that CFOs are seeking to overcome through transformation are:

  • Improving productivity of activities such as reconciliation, ledger maintenance and payments

  • Improving response time, thereby impacting customer experience and organizational agility

  • Improving transparency and accuracy of transactions, and contracts

  • Ensuring compliance in the face of constantly changing regulations

    Reducing fraud and duplication

Given the nature of these challenges, blockchain can play a vital role in the finance function’s transformation strategy.

Blockchain, otherwise known as a ‘distributed ledger,’ is a collection of data which is:

  • De-centralized (all participants can add data directly without a central authority managing it)

  • Transparent (identities are secure and transactions can be viewed on the network)

  • Immutable (data once added cannot be tampered with)

For example, a finance team using blockchain to maintain ledgers will not be required to record the transactions separately on the basis of receipts. Instead, transactions will be recorded in an open and joint ledger, distributed across several nodes. The price, asset, and ownership details of such a transaction will be recorded, verified and settled in real-time across every node.

Blockchain can potentially have wide applications in a finance function, including:

  • Real-time data management

  • Overhauling payment processes

  • Reducing number of reconciliations

  • Simultaneous settlement of inter-company transactions

  • Reporting (such as consolidated financial views of group companies)

  • Accounting (such as maintaining chart of accounts, product and project accounting)

  • Financial management (such as working capital planning, budgeting and forecasting)

Slow Adoption

Even as most organizations see a compelling business case for the use of blockchain technology in the finance function, its deployment so far has been guarded. A recent survey of tax and finance executives found that while 60 percent preferred deploying blockchain, 67 percent acknowledged not using the technology. Another study of organizational executives found that while 84 percent agreed to blockchain being a mainstream technology in the future, nearly 50 percent admitted that blockchain was either not one of the top five strategic priorities or that it was not a strategic priority at all.

A part of the reason is that the technology itself is still maturing with experts working to find solutions to challenges such as interoperability (networks being capable of communicating and sharing data with each other). Another reason is the absence of an all-encompassing ecosystem that is required to enable blockchain in finance.

Gaining the Blockchain Advantage

There is an overwhelming agreement on the business case for blockchain. Preparing the organization to gain an edge using this technology should be a key agenda for forward-thinking CFOs. Blockchain’s successful implementation and functioning will necessitate changes, both within the organization and externally. These include:

  • Internal Recalibrations: Change in business model to incorporate governance, regulatory, tax and compliance requirements. Up-skilling existing staff and hiring blockchain specialists. Assessing the scale of investment required in integrating existing systems and technologies with blockchain

  • External Factors: Regulatory framework required to manage and enable suppliers, manufacturers and other intermediaries. Securing the points where breach of blockchain-enabled solutions is likely. Defining areas for competitor collaboration

Deloitte’s 2018 Global Blockchain Survey lists areas with highest blockchain investment; supply-chain leads with 53 percent investment, digital records at 44 percent and payment claims at 30 percent. Early movers are beginning to tap into the blockchain advantage. The study also revealed that 69 percent planned to replace their current system of records with blockchain.

Regulatory bodies are also gearing up to provide the required support for this technology. In the U.S., the state of Washington has passed a bill recognizing and protecting the legal status of electronic records pertaining to distributed ledgers such as blockchain.

Blockchain is emerging as an unmissable opportunity to transform finance into a more efficient, transparent, compliant and strategic function in the near future.

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