Blockchain has been touted as the defining technological advancement in recent years, set to transform the way we do business. It is the technology that underlies Bitcoin – the virtual currency that made some lucky early investors overnight billionaires.
As with any trend, its popularity will likely wane as critics begin to question whether the technology is just a ‘fad’ or offers any real long-lasting value. Last September, consultancy Deloitte released a report saying the technology has remained an interesting idea rather than an actual reality for many companies, with commercial adoption so far remaining limited.
Only nine percent of CIOs agreed that their organisations had set up blockchain projects or planned to within the next year, according to data included in the report. Deloitte cited the complexity of setting up distributed ledger technologies as one of the obstacles to adoption, as well as the fact that these systems are still fairly slow at processing transactions. A lack of standards and interoperability is another issue highlighted.
There are also legal and regulatory concerns – about data privacy for instance – that remain a hindrance. Blockchain is technically complex and is often something companies just haven’t managed to get their heads around yet.
Yet despite these obstacles to more widespread adoption, I see blockchain as a powerful tool to take supply chain finance towards its next stage of development.
There have already been some pilot case studies that have implemented blockchain to support SCF. At the SCF Forum in Amsterdam two years ago, Andrea Redaelli, CEO of Hugo Boss, told delegates how the company has been experimenting with using the technology to track goods as they passed through a supply chain.
Last May, HSBC completed its first trade finance transaction using blockchain to support the financing of soybeans. Commerzbank in Germany also launched a pilot blockchain project last year. The bank, supported by software provider SAP, completed an end-to-end integration between SAP’s S/4 HANA business processes and the Corda blockchain platform provided by distributed ledger consortium R3.
I see blockchain as the only thing that can finally help move SCF on from just being a form of reverse factoring. The finance industry is not yet fully able to offer products that spread across the whole upstream side of the value chain – providing financing before invoices are approved. With the technology’s ability to create transparency and trust at every point of the chain in combination with the use of smart contracts, companies and banks will be better able to provide financing at an earlier stage.
Blockchain – if used correctly – could limit the possibility of fraud, eventually speeding up transactions and providing greater transparency and comfort to lenders and companies enabling them to know exactly where their goods are in a supply chain – and what their risk exposure is – at any time.
I understand that we are all still at an early stage of development with blockchain and its implications for SCF. After all the hype, people have realised that it is a complex system and its benefits are not as easy to achieve as consultants may initially have thought. But I am convinced that we must persevere in order to really harness blockchain’s potential.
I and my colleagues have also observed that there needs to be a shift in mindset with the corporates considering the adoption of blockchain solutions.
Many corporates’ enthusiasm for blockchain starts to falter when it comes to the idea of providing total transparency to suppliers. The main concept behind distributed ledger technology is that everyone in the chain can access the information disclosed to the chain in real time whenever they want. Initially large corporate buyers like the sound of transparency in the supply chain and then become reluctant to allow their suppliers to have access to their sensitive financial information such as cost structures.
This is where we and others can play a role in educating the market about the technology’s concrete abilities, resulting from specifications such as the difference between public and private blockchains. By using a private blockchain for example the transparency hurdle can be overcome by granting certain access rights to certain members of the chain and not permitting full transparency to everyone.
While there are many positive examples and first movers, I would like to see many more companies taking up the challenge of trying to integrate blockchain into their supply chains in the coming years. And I truly hope they avoid buying into the increasingly present arguments that suggest blockchain was only overhyped and that Artificial Intelligence (AI) is actually the main or only tech trend to watch.
I see blockchain’s full potential being fulfilled in combination with other new technologies such as the Internet of Things and Services. This could be the driving force behind the next generation of SCF products. Blockchain will help shape a new digital ecosystem which companies from any industry and in any stage of the supply chain together with banks will have to navigate.
We will be discussing blockchain and its role in the emerging new digital ecosystems at the iSCF conference being held in Frankfurt later this year – I look forward to seeing you there.