With the arrival of process automation, cognitive tools, and blockchain, finance organizations are facing the potential for major transformation. In the last of our series of three blogs, we’ll take a look at how blockchain is shaping the future of finance.
By Girija Krishnamurthy, Deloitte Consulting LLP
Many people know blockchain as the technology behind Bitcoin. The distributed ledger technology allows users to add blocks of information onto a chain of transactions, creating an immutable history of accepted, time-stamped and encrypted data visible to participants. Blockchain has proved to be a reliable and versatile platform for cryptocurrencies, which have thrived despite some well-known growing pains. Nevertheless, the ups and downs of Bitcoin and its offshoots made some risk-averse finance leaders a bit skeptical of this emerging disruptor.
If CFOs look outside the walls of finance, they’ll see blockchain taking off in many directions. There are dozens of potential applications for blockchain in industries ranging from financial services and telecommunications to consumer products, health care and logistics.
For example, a Fortune 100 logistics company is investing heavily in blockchain technology to provide greater visibility and efficiency in its freight business. This logistics company hopes that blockchain’s distributed ledger may likely enable it to track freight even when it moves to parts of the supply chain it doesn’t own, such as rail lines.
Health care companies are now using blockchain’s digital encryption technologies to help make medical records more mobile and improve the traceability of drugs. And blockchain’s immutable transaction-recording system could make claims processing and dispute resolution more efficient.
Even groceries are getting into the act. A growing number of grocery store chains are investing in blockchain solutions to track foods from the farm to the grocery aisle to the table. The distributed ledger provides a clear chain of custody as edibles from mangoes to chickens travel across global supply lines with multiple handoffs. Using blockchain, organizations will be able to trace bad food back to its source in seconds and perform a speedy recall—fast enough, perhaps, to avoid incidents like the romaine lettuce e-coli outbreak of earlier this year.
Yes, blockchain is coming to the finance function too. In a Wall Street Journal article, Deloitte’s Rich de Mole and Dean Hobbs explain how blockchain has the potential to reshape finance processes to deliver cost and control benefits. The authors point out that blockchain can be used to improve procure-to-pay, order-to-cash and intercompany transactions. When it comes to managing supply chains, for example, blockchain technology can enable an effective integration of finance processes including settlement, financing, insurance, and warranty. Other organizations are looking at use cases ranging from simplifying cross-border payments to streamlining stock trading.
One of the many useful features of blockchain technology is the ability to create “smart contracts” that govern how transactions are processed. Once participants on a blockchain accept a contract, the terms and conditions can’t be changed, unless all the parties agree to modify them. The permanent nature of transactions recorded on a blockchain, together with its total transparency, can help reduce the possibility of fraud and errors.
Hobbs and de Mole point out that finance organizations can use blockchain to control many kinds of transaction processes, including “self-validating” sub-ledgers for order-to-cash and procure-to-pay integration, revenue cycle management, and trade finance. Deloitte worked with one company, for example, to set up an intercompany blockchain to document purchase agreements, confirm receipt of goods and services, facilitate settlement, and process payments.
It’s no wonder that more and more ERP providers—Oracle among them—are integrating blockchain into their ERP cloud applications. Yet companies that pursue blockchain initiatives may want to reconsider changing their existing enterprise systems. As Hobbs explains, blockchain “simply shares data you select with specified parties so they can see the same information you’re seeing at the same time.” The more immediate challenge, he says, is establishing a sustainable group of trading partners bound together by smart contracts and clear rules of engagement.
Deloitte, for its part, has been making significant investments in blockchain solutions. Deloitte recently launched a blockchain lab designed to accelerate development of a range of use-cases and empowering organizations to connect and exchange value in more dynamic, efficient and immediate ways.
Starting small makes sense and can potentially reduce risk. Some finance organizations may want to get their feet wet by piloting blockchain for intercompany transactions with the goal of simplifying the sale of goods and services across legal entities. This can give companies valuable experience working with blockchain before extending the technology to include external trading partners.
Organizations that start early on disruptive blockchain projects could gain a first-mover advantage that could propel growth and innovation. Does your finance organization have a strategy to harness blockchain technology? I’d love to hear from you.
Girija Krishnamurthy is a principal with Deloitte Consulting LLP and leads the Digital Finance area of Deloitte’s Technology practice. Girija brings over 17 years of deep finance transformation and implementation experience for clients spanning North America, EMEA and Asia Pacific. She holds an undergraduate degree in Engineering and an MBA in Finance and Information Systems.
As used in this document, “Deloitte” means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of our legal structure. Certain services may not be available to attest clients under the rules and regulations of public accounting.