EACT Summit 2019: Blockchain for Treasury
by Eleanor Hill, TMI
Jamie Counihan, Deloitte EMEA Blockchain Lab
Lorcan Travers, Senior Manager Investment and Liquidity, Johnson & Johnson European Treasury Company
Blockchain for treasury: concrete use-cases
Put simply, blockchain is a network of peers that have the opportunity to share value, identity, and data amongst each other by replicating a digital ledger amongst all participants. This ledger is immutable – meaning that data in the blockchain cannot be changed; instead a reversal transaction has to be introduced. These functionalities and capabilities of blockchain technology present huge possibilities to improve treasury processes.
Of course, blockchain can be used to make payments – and treasurers may find that some of the pain points associated with cross-border payments in particular could be removed through blockchain solutions. But blockchain can do much more than this: it has the potential to transform all commercial processes into three-dimensional transactions, with full visibility of all activities in value and supply chains. This could significantly reduce the reconciliation effort associated with corporate-to-bank financial activities, such as accounts payable and accounts receivable.
Leveraged in the right way, blockchain could also make intercompany reconciliations significantly less painful. Treasurers using blockchain for intercompany reconciliations stand to benefit from real-time reporting – there is no need to wait for quarterly or half-yearly reports anymore. Blockchain also allows for the co-ordination of management reporting, audits and tax filings, in real time. It enables the transfer of value and information amongst business partners and subsidiaries automatically too, meaning that manual effort can be reduced. Together, these benefits should also lead to improved financial planning and the potential to reduce risk.
Elsewhere, numerous commercial activities and even legal activities can be digitised and automated on the blockchain through smart contracts – which essentially execute themselves once pre-defined parameters are met. Trade finance is one area where smart contracts are speeding up both physical and financial flows. Blockchain-based platforms like we.trade are also helping to make open account trade quicker and safer, thanks to the ability to have transparency over financial transactions and counterparties on a global scale.
One of the most relevant treasury use cases for blockchain is Know Your Customer (KYC) processes. This is a significant headache for treasurers and banks alike; blockchain presents the opportunity to re-imagine the KYC process entirely by leveraging digital identities and permissioned KYC repositories. In this scenario, the treasurer sends digital documents to just one financial institution that performs the required KYC and stores the results in a shared platform. Permissioned banks can then leverage the KYC checks performed by other financial institutions.
Another interesting use case is regulatory reporting. Blockchain technology can be used to create operationally efficient regulatory reporting, providing insightful analytics whilst increasing transparency and auditability. Blockchain-based regulatory reporting platforms should help to reduce the manual burden of regulatory obligations and help to keep the regulator updated on a real-time basis.
Along with the opportunities, it is important to consider the potential risks of blockchain. Treasurers are likely to have concerns around cybersecurity, especially around KYC on the blockchain. It is important to remember, however, that the use cases in question would not leverage public blockchains; rather they would deploy private blockchains – which are more secure given the ability to restrict access to specific individuals.
Moreover, security measures for all blockchains are constantly improving. This should give treasurers greater confidence in using these emerging solutions to improve treasury processes, remove manual burden, and free up the treasury team for more strategic tasks.
Blockchain has the potential to deliver 360° visibility of all activities in value and supply chains.
Areas where treasurers could leverage blockchain include: intercompany reconciliations, cross-border payments, trade finance, KYC and regulatory reporting.
While cybersecurity might be a concern around blockchain solutions, using private blockchains is safer than public blockchains, and security measures for blockchains are becoming more sophisticated.