A CFO’s guide to blockchain
Blockchain is of increasing interest to businesses but also remains clouded in ambiguity.
Many associate blockchain with cryptocurrencies like Bitcoin, but the technology is much more and different than that. Blockchain solutions can be utilised for many types of transactions in trade and commerce, not only those associated with digital currency. These ‘business blockchains’ should be the primary focus for CFOs.
A new report on Blockchain for Finance by Deloitte, explores what CFOs need to know about blockchain that businesses everywhere are talking about. Here are key tips for success:
Pay attention to sceptics and evangelists
Blockchain adoption is accelerating because it offers benefits other technologies cannot easily replicate. To cite one example, a consortium of retailers, producers and freight providers is collaborating to ensure the integrity or authenticity of goods such as organic produce and prescription drugs.
CFOs should develop a reading list to gather information from both evangelists and sceptics. The landscape for blockchain applicability and use cases is moving fast in all sectors. Results will differ, and points of view will vary. Learning from both sides of this equation will help you come to your own conclusion.
Use teamwork to track developments
CFOs should consider establishing a team of both technical and business people to track blockchain developments in finance and monitor what leaders in your industry are doing to create value with this emerging technology. Many use cases are being explored and piloted with real intent to move toward production:
- Self-validating sub-ledgers for receivables and payables
- Intercompany accounting and settlement
- Revenue cycle management
- Trade finance
- Working capital and cash-cycle improvement
- Fraud and risk detection
Meet your trading partners
Where multiple parties need to share in creating or maintaining a transaction record, blockchain offers an effective way to streamline processing and create a single source of truth. CFOs could therefore benefit from meeting a few major trading partners to understand their thoughts about blockchain opportunities.
Companies facing similar complex challenges in an industry can benefit from standing up a blockchain across their trading ecosystems. Blockchain can enable management of asset purchases, financing, warranties, insurance, regulatory compliance, and public safety – in an integrated manner and all at the same time.
Blockchain provides its greatest benefits when a solution includes multiple participants – multiple manufacturers, suppliers, customers, service providers, transportation providers, regulators, and possibly tax authorities. This potential is a key consideration for companies that share a targeted purpose within a sector: food safety or mortgage underwriting compliance, for example.
Realise that your customers and suppliers will likely not want to integrate with multiple blockchain platforms. Therefore, emerging blockchain solutions create consortiums that have competitors participating on the same blockchain platforms with their sensitive data protected. Designing the consortium is a critical component of your blockchain strategy.
Monitor regulatory risk
There are a host of regulatory and compliance considerations related to blockchain, so CFOs should ensure their Chief Risk Officer is an informed stakeholder. In the short-term, regulators and auditors are likely to be sceptical. However, the value derived from key blockchain functionality – such as self-executing smart contracts and irreversible records – cannot be discounted. Auditors and regulators are beginning to recognise that blockchain offers a way to save time and improve compliance.
Blockchain may be overkill in some situations. However, blockchain can be an effective solution where the transacting parties need to create, access, and maintain records over an extended timeframe, such as an asset lifecycle spanning decades or a patient’s entire lifetime.
Lead, follow or risk being told
Some CFOs see blockchain as a game-changer: they expect it to transform their finance organizations, their entire business model – or industry sector – and view themselves as catalysts for change. They see significant efficiency and control benefits on the horizon and are evaluating options now, so they can capture savings sooner and help define the future.
Others are starting to look at blockchain but aren’t ready to take the lead. They view the potential as valuable, but to act, they need more defined security, controls, and regulatory requirements that are ‘baked in’ from the outset.
A third group of CFOs are taking a wait-and-see approach. They expect demand for blockchain to come from other areas of their business and will support as appropriate. CFOs following this policy will probably need to conform to evolving operating structures that are set by their industry, with limited ability to shape the protocols or influence the standards for interaction.
Ready to start? Start small
Blockchain is set to go mainstream and become a built-in part of technology and business process solutions. It has the benefit of scalability, so CFOs can use that to their advantage. When it comes to blockchain, think BIG but when you start, start small. Design a proof of concept to test critical assumptions such as user experience, integration, working with others, business value, technical functionality, etc. Proof of concept pilot projects can make the potential benefits understandable, allowing you to quickly learn from the results and adjust accordingly.