Last week, it was announced that Amex has launched a blockchain-based business payment network using Ripple, a fintech start-up. The system is intended to allow U.S. corporate customers to send funds to UK-based businesses that bank with Santander UK.
This marks one of the first major uses of blockchain, financial firms hope the emerging technology can reduce the cost and complexity of currently onerous processes such as securities settlement and international payments. The Amex move means that funds transfers that used to take its customers days to execute will be completed in real time – introducing efficiencies and cost savings to the process.
Who Will Be Next?
Critics still believe that the technology is years away from use in prime time. Yet, major players like Amex and Santander, are already there.
To help you to better understand what blockchain is all about, consider these four key concepts (which underpin the technology on which Bitcoin runs):
- Permissions: A blockchain for business network can be set up as a members-only club, where every participant has a unique identity, and participants must meet certain criteria to conduct transactions. Participants can conduct transactions confident that the person they’re dealing with is whom they claim to be.
- Shared and distributed ledger via a Peer-to-Peer network: Blockchains shift the traditional business transaction archetype from one where transaction information is held by a single owner (i.e., usually the seller, institution etc.) to a shared history of a transaction for is associated members. Members can validate transactions and verify identities and ownership without the need for third-party intermediaries. All relevant information can be shared with others based on their roles and access privileges.
- Consensus: Ensures that all transactions are validated before being appended to the blockchain, and the blockchain itself is highly tamper-resistant.
- Cryptography: Advanced encryption, along with permissions, ensures privacy on the network, preventing unauthorized access to transaction details and deterring fraudulent activity.
These concepts work together to provide the benefits that blockchain has to offer a business, including:
- Efficiency – As transactions are completed via digitized information directly between the relevant parties within the peer-to-peer network (i.e., with no intermediary), settling the transaction can be quick.
- Lower Costs – Further, a reduced need for intermediaries, which often introduce error, add costs and introduce risk to the process, lessen the total cost of operations.
- Transparency – Better transparency of information among those involved in each transaction. Everyone has access to the same information at the transaction level.
- Improved “Stickiness” – With full traceability throughout the network, additional support processes can be weaved into the blockchain including those associated with scheduled maintenance, re-order, returns processing and the like.
- Auditability – As each transaction is recorded sequentially and for life, it provides an ineradicable audit trail.
- Security – As each transaction is verified within the network using independently verified complex cryptography, the authenticity of the information can be assured. Better protection of information further reduces the costs to a business by reducing the expense associated with cybercrime and privacy breaches.
To close, if you haven’t already, it may be time to begin to explore whether blockchain is right for you. I see it as one of those trends that has been percolating within technology and fintech circles for a while and, with the Amex announcement, it looks like it may just be ready to explode. Reach out if you’d like some assistance in exploring if its use makes sense in your company.