FinTechBlockchainBlockchain: Part five of our in-depth focus on the six bold treasury predictions for 2019

Blockchain: Part five of our in-depth focus on the six bold treasury predictions for 2019

At the end of 2018, Kyriba VP Bob Stark walked The Global Treasurer through six key treasury areas in which he was expecting profound changes to occur over the course of 2019. In this series, we’ll conduct an in-depth exploration into each of those key areas. Part five delves into blockchain and why it may not be a major influencer for treasury in 2019.

Distributed ledger technology has built an extraordinary amount of momentum and totally disrupted swathes of the financial landscape since it hit the mainstream a decade ago. Yet while the majority of blockchain media coverage continues to centre on the tumultuous value exchanges and practical applications of blockchain-powered cryptocurrencies, developers have finally started to focus their attention on how blockchain can be deployed to create dynamic payment experiences and enterprise solutions for industry.

Incumbent banks, payments providers and start-ups are now in the midst of a proverbial patent war, with the World Intellectual Property Organization recording more than 400 blockchain patents at the start of last year. Chinese ecommerce giant Alibaba and IBM alone have tallied up a combined 179 blockchain patents. Yet while payments providers are working at break-neck speed to bring innovative solutions to market, blockchain has yet to gain traction in treasury.

The lack of adoption doesn’t stem from a total absence of potential solutions.

For example, Boston-based start-up Adjoint’s Smart Treasury solution offers a real-time API integration with an organisation’s existing TMS or ERP systems, and uses distributed ledger technology to auto-reconcile transactional information, eliminate netting processes and improve FX management to provide treasurers with streamlined efficiency and improved, real-time visibility on cash positions. The tool’s Smart Contracts system also uses blockchain to help teams define and set pre-configured rules that securely enable automated, real-time transactions.

Yet while pioneering developers like Adjoint are showing a tremendous amount of potential in utilising distributed ledger technology to shift the treasury landscape, researchers at BNP Paribas seem to think that practical, treasury-focused blockchain solutions are very much “still in their infancy” – which is why distributed ledger technology is unlikely to be a gamechanger for treasury in 2019.

Why? First and foremost, blockchain-back financial products and cryptos are still struggling to rectify scalability issues. Blockchain poster-currency Bitcoin currently averages around just eight transactions per second. Until existing blockchains are able to increase performance to consistently higher levels, it’s improbable treasury teams will be keen to adopt tech solutions that’re actually slower than existing payments and transactional experiences.

What’s more, despite efforts to improve scalability and overcome performance hurdles, distributed ledger applications face a far higher barrier in the treasury space due to a lack of certainty regarding counterparty risk. While blockchain-powered smart contracts do indeed have the potential to increase collateral monitoring frequency and automate plenty of settlement processes, many blockchain developers are currently struggling combat a lack of trust and certainty amongst treasury teams.

When in doubt, treasurers will always choose the safest provider or solution, regardless of cost. This trust can (and will) ultimately be established, enabling fintechs to rollout their blockchain-powered TMS solutions across a wider audience. But until then, blockchain’s influence over the treasury space will likely be limited in scope to the embedding of partial, integrated solutions that are being made available through existing bank channels or more recognisable names in treasury and payments.

Examples of these sort of ‘halfway solutions’ will become increasingly common in 2019.

Blockchain start-up R3 announced the completion of testing in December on a new KYC proof-of-concept solution powered by the blockchain, which was facilitated in collaboration with the French Association of Corporate Treasurers (AFTE), RCI Bank, Allianz France and BNP Paribas. Meanwhile, industry-specific solutions like IBM’s upcoming collaboration with PNC Bank and Aetna to develop a blockchain-based network to manage and facilitate payments for healthcare providers have the potential to revolutionise the treasury space for finite markets, particular industries and organisations.

Yet for all the progress being made and exciting applications being explored, at this point it appears unlikely that 2019 will be the year in which blockchain gains considerable traction in treasury management.

 

 

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