Blockchain and its decentralized nature are clearly the saviors of the original IoT vision. The real promise blockchain brings to IoT is to automate trusted services through code intermediating the flow of data. This is not just between companies and their customers – but across entire ecosystems. The technology makes it impossibly hard for hackers to corrupt the data through increased authentication and its inherent property of immutability. With this, blockchain also has the potential to deliver cross-platform compatibility and manage millions of connected devices on various platforms by making a standard machine-to-machine smart contract.

“By 2019, as IoT adoption grows in major industries, governments, and consumer sectors, 20 percent of all IoT deployments will have basic levels of blockchain services enabled.” – IDC

As of today, IoT finds a majority of its use-cases in remote watching, device automation, and information collection. Within the next decade, it will have self-governing interactions of connected devices. These devices will be capable of making smart choices on their own without needing any human assistance.

In the future, blockchain will boost the IoT economy with Machine-to-Machine interactions. For example, a smart fridge will be able to deduce the time for replenishing and will automatically make an order using smart contracts, and submit payment for the purchased items using crypto.

Communication Gap: Issues Associated with Blockchain in IoT

In any major IoT network, there will be a need for billions of devices to stream data and interact continuously. Blockchain technology, currently, is not equipped to deal with this type of transaction throughput.

Somewhat related to this is the cost of emitting transactions on a blockchain. Transaction fees make a lot of older blockchains unsuitable for the type of continuous micropayments that are typical in M2M communication.

However, the idea of blockchain-based IoT is still on the cards. An intensive amount of research at companies like Blaze Protocol focuses on making the high-throughput no-fee decentralized network a reality. Specialized IoT-focused networks are also in development. IOTA is an ambitious project replacing the blockchain data structure with a directed acyclic graph, doing away with blocks, and having no transaction fees.

Blockchain and IoT’s combination is something that the entire industry is looking forward to. The technology is creating a promising future of secure and efficient M2M interconnectivity.

The post Blockchain for IoT: The solution for Machine to Machine communication appeared first on Deqode Blog.

McKinsey and Company

After drafting the infamous Blockchain’s Occam Problem article which received much flak from the blockchain community for calling the technology relatively complex, expensive, unstable, and unregulated, ‘the Firm,’ seems to have changed its tone. While it is alarming that a company so revered and pro-blockchain hasn’t talked about the tech a lot post-Occam Problem in January, their latest piece on the technology, Blockchain and retail banking: Making the connection highlights ‘several areas where the technology could create value for retail banks.’

In particular, McKinsey is keen on three use-cases:

1. Remittance
2. KYC and Fraud Detection
3. Risk Scoring

However, McKinsey lists four significant issues that need to be solved before Blockchain’s application into retail banking. These issues seem to be generic ones that could be applied to several sectors. The firm also lists solutions for the same:

• Challenge: Blockchain networks are transparent to their members, meaning that there are limitations to anonymity in some scenarios.
• Solution: Several companies are experimenting with “tokenization,” which disguises sensitive data by substituting it with a token that serves as a reference.
• Challenge: Real-time settlement is currently impossible due to the lack of fungibility between crypto-assets and fiat currencies.
• Solution: Stablecoins are one solution, but they will require correspondent banks to make the eventual conversion.
• Challenge: Costs associated with switching from individual to shared systems, questions about accountability, cultural and practical challenges Solution: Banks must create large networks to achieve benefits at scale, requiring data standardization and collaboration, and solve the so-called coopetition paradox.
• Challenge: Customers may choose to restrict access to protect their privacy and security.
• Solution: Financial institutions are likely to need to work hard to bring them on board.

This blockchain report, in conclusion, suggests four points that could help increase adoption:

1. More seamless transition between fiat and digital assets, so that customers do not risk losses as they switch back and forth.
2. Regulation, so that participants have certainty around the status of crypto assets, rules of engagement, and investor protection.
3. Consumer identities should be created on the Blockchain, enabling banks to offer real-time loan decisions based on authenticated ID.
4. There needs to be a strategic watershed. Executives need to believe that the long-term benefits of Blockchain are worth the cost.

Boston Consulting Group

When the most innovative consultancy of the big 3, BCG, published Capturing the Value of Blockchain in April of 2019 – it brought many enterprisey-eyes on the technology. BCG sets the record straight by starting the article off by claiming that investors are continuing to pour record-breaking sums into space. It then goes on to list four primary sources of value that blockchain use cases can deliver:

1. New Business Models
2. Operational Efficiency
3. Risk Mitigation
4. Social Impact

BCG then talks about the determination of models, where it lists ‘Linear’ and ‘Network Effects’ for the same. They explicitly state that while blockchain use cases that deliver network effects have the potential to be true disruptors, it requires the following:

1. Significant financial and technical resources
2. High tolerance for risk
3. The ability to convince a critical mass to join a nascent platform
4. An established POC

BCG lists three most promising use cases for eight specific industries according to the linear, network effects, and their hybrid models – and mentions how the technology is still new, the list of possible avenues to take are wide and the operational and partnership requirements to deliver on any of them are often extensive.

PwC

PwC survey of 600 executives starts with six critical figures:

1. 84% of respondents are actively involved with blockchain
2. 45% believe trust could delay adoption
3. 30% see China as a rising blockchain leader
4. 28% say interoperability of systems is a key for success
5. 52% of companies are in the R&D phase
6. 15% have their projects live

Three critical observations from their blockchain report include:

1. Financial services will be the current and near-term leader of blockchain.
2. Potential in industrial products, energy and utilities, and healthcare.
3. The US is the most advanced territory in developing blockchain today. In three to five years, China will take over.

A majority of their survey then focuses on blockchain’s barrier to adoption:

The beautifully phrased final section, titled ‘Why it’s hard to trust a blockchain’ should be read in its entirety:

Blockchain, by its very definition, should engender trust. However, in reality, companies confront trust issues at nearly every turn. For one, users must build confidence in the technology itself. As with any emerging technology, challenges and doubts exist around blockchain’s reliability, speed, security, and scalability. Also, there are concerns regarding a lack of standardization and the potential lack of interoperability with other blockchains.

Also contributing to the blockchain trust gap is a lack of understanding. Even now, many executives are unclear on what blockchain is and how it is changing all facets of the business. Although the public narrative has moved beyond bitcoin, even the more recent focus and hype around ICOs only hint at the potential impact. Blockchain’s role as a dual-pronged change agent — as a new form of infrastructure and as a new way to digitize assets through tokens, including cryptocurrency — is not easy to explain. Think about other new technologies: users can try on virtual reality goggles or watch a drone take flight. However, blockchain is abstract, technical, and happening behind the scenes.

Another challenge for blockchain is building trust in the network. It is perhaps ironic that a technology meant to bring consensus hits a stumbling block on the early need to design rules and standards. Take payment systems and mechanisms in banking. Though everyone plays by the rules of existing systems today, they don’t necessarily agree on how an alternative blockchain-based model should be designed and operated.

Likewise, there’s a lack of comfort regarding regulation. The majority of regulators are still coming to terms with blockchain and cryptocurrency. Many territories have begun studying and discussing the issues, particularly as they relate to financial services, but the overall regulatory environment remains unsettled.

Deloitte

Compared to other studies, Deloitte’s survey (n=1386) is one of the most optimistic blockchain surveys in 2019. Key findings include:

• 53% (2018: 43%) of enterprise respondents cite blockchain as a top-five strategic priority
• 56% (2018: 59%) believe blockchain will disrupt their industry.
• 6% are unsure or don’t see the need to use blockchain.
• The top five blockchain advantages:
  • New business models and value chains (23%)
  • Greater security or lower risk (23%)
  • Higher speed compared to existing systems (17%)
  • Greater transparency (11%)
  • Lower costs (9%)
• The survey respondents were biased towards IT executives (56%)
• 42% of startups cited the main blockchain benefit as new business models and value chains compared to 23% for enterprises
• Additionally, enterprises have a greater belief that blockchain provides greater security (71%) as opposed to 48% of startups
• 86% believe that blockchain technology is broadly scalable and will eventually achieve mainstream adoption
• 43% view the technology as overhyped

• The top five barriers to greater blockchain investment are:
  1. Implementation
  2. Regulatory issues
  3. Potential security threats
  4. Lack of in-house capabilities
  5. Uncertain ROI
• The top five use-cases are:
  1. Technology, media, and communication (26%)
  2. Financial Services (15%)
  3. Manufacturing (12%)
  4. Retail, wholesale and distribution (7%)
  5. Professional services (6%)

KPMG

KPMG surveyed 740 global technology leaders for its 2019 Technology Industry Innovation Survey. Following are their findings in the context of blockchain technology:

• 48% percent of respondents said blockchain would likely or very likely change the way their companies do business within three years
• The rest of the respondents were neutral (24%) or didn’t believe (27%) blockchain will change their company’s business processes within three years
• 41% said it was likely or very likely for technology companies to implement blockchain within the next three years, 31% were neutral and 28% said they wouldn’t, or it’s unlikely
• IoT was the most promising area (27%) for blockchain disruption in the next three years. Trading such as platforms for small businesses came second with 22%. Reducing cyber risk (for instance, using ledger identity authentication), was ranked third with 20%. In fourth place was contracts (18%) including payments, insurance, and blockchain identity
• The top three blockchain adoption challenges:
  • Unproven business cases (24%)
  • Technology complexity (14%)
  • Lack of capital or funding (12%)

teQatlas

TeqAtlas is a blockchain, IoT and AI analysis and research company. We couldn’t establish the proof of credibility of their reports so their findings must be taken with a grain of salt. Four key observations from them include:

• Digital Currency Group dominates in the number of deals, 32 deals ahead of the next two investors combined (Pantera Capital and Blockchain Capital)
• A majority (8 out of the top 10) of the most active blockchain investors are located in the US. More than half of all investors are Venture Capital firms.
• Majority of investors are focused on FinTech blockchain startups
• Financial sector seems to be the fastest way to get investments – it has over 150 deals

The following are the most important charts:

Six Important Takeaways

• Financial Services emerges as the most promising use-case of them all
• Blockchain technology is still in the nascent stage
• Cognitive bias against blockchain technology still exists
• The three biggest hindrances in front of mass adoption seem to be:
  • Co-opetition paradox
  • Regulatory Issues
  • ‘Unproven’ business cases
• New business models (for instance, p2p energy trading) – is something organizations can bet on
• Sentiments seem to be better in the first half of 2019 than its 2018 counterpart

Disclaimer and Fair Use Statement for Blockchain Report 2019

This document contains quotes and statements from different organizations – the use of which may not have been specifically authorized by the copyright owners. This blockchain report is available to explain issues relevant to blockchain or to illustrate the current condition of the blockchain industry. Any bit of information in the blockchain report from McKinsey, BCG, PwC, Deloitte, KPMG, and Teqatlas – and other organizations named in this document are the properties of the respective companies. This document has no commercial value. The document constitutes a ‘fair use’ of any such copyrighted material (referenced and provided for in section 107 of the US Copyright Law).

The opinions and interpretations contained in this blockchain report are based on different organizations’ publically available blockchain reports and surveys – hence, Deqode does not take responsibility for the verifiability of the statistics present in them. If you wish to use any copyrighted material from this site for purposes of your own that go beyond ‘fair use,’ you must obtain permission from the copyright owner.

Suggested Reading: https://deqode.com/blog/investing-in-cryptocurrency/

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Esports: The Next Big Play

Esports has emerged as one of the highest potential markets on the planet with a broad audience, aged 16-36. Also, the current esports market has an estimated revenue of $700M with an active audience of nearly 200M. The market has a CAGR of a staggering 33%. At the same time, it is limited to the top 1000 players and about 100 teams, who together hold the biggest share of money in esports: the $300M sponsorships and media rights sales pie, $120M in advertising revenue, $100M of prize money and $40M in player compensations and salaries.

The esports market revenue was $0.5Bn in 2016, $0.7Bn in 2017, $1Bn in 2018 and is projected to grow to $1.5Bn in 2020 with a 33% CAGR.

Blockchain in Esports: Dynamic Duo

Esports has seen a lot of attention from the blockchain community. It is a multi-billion industry that will continue to grow exponentially in the coming years. With an industry that has so many participants, only a small percentage goes back to the players and brands. There isn’t a self-sustaining ecosystem for both of them. The industry has turned into a commercialized one-way street for corporations and payment providers to take advantage of a vast majority of gamers, developers and game publishers. Blockchain could help put an end to these issues.

Not a Messiah

Before moving further, and discussing the use-cases of blockchain in esports, we need to establish that there are a lot of articles on the web who claim that that esports needs blockchain, but that’s clearly not true. Esports will keep growing without the help of blockchain – the industry is already growing 11% year-on-year, with billions of revenue.

So, esports doesn’t need blockchain to grow, but to improve.

Esports: The Lag is Real

Esports industry has huge potential that is presently hampered by two major problems that are discussed below:

1. A tiny percentage of the billions in revenue that the industry generates goes back to the actual players. When it does, it goes to only a few elite gamers. Millions of amateur gamers don’t see any money for their efforts. Streaming or betting on the outcome of matches and tournaments are the best ways to earn money in the gaming industry, and they’re not reliable income streams.

2. Esports industry is highly fragmented. A vast majority of games aren’t cross-platform, so, the user base gets divided into console, PC, and mobile. also, there are games that differ from each other quite drastically. For instance, esports enthusiasts who like Counter-Strike might not care about League of Legends, and vice versa. Each game has its own user base and its own revenue stream. This makes it very difficult for the industry to improve and grow collectively.

Blockchain in Esports: Fast Travel

1. Gamers have to put a lot of trust in the organizers of the esports tournament and are at risk of being defrauded. This could happen to pro gamers as well. Blockchain can eliminate that risk and make esports for casual gamers trustless and much more secure – because there’s no centralized entity pulling strings from behind the curtain. Everything is recorded on the blockchain – and cannot be changed by a third party. The awarding of prizes can be encoded into a smart contract that will automatically pay the winner when the tournament is over.

2. Blockchain will allow Esports to become less fragmented. Using dapps, anyone can create a single universal gaming profile for all games. As a result, this will help with all the relevant stats for all games across all platforms, which can be recorded onto the blockchain, ensuring their authenticity and transparency.

Conclusion

Blockchain in esports will allow the industry to become transparent, more secure, and less fragmented. Also, It will give people a better chance to earn money from gaming. It will speed up esport’s future – where gaming is no longer seen as a pastime, but as a profession instead.

Also Read: Victory Royale: How Blockchain Could Fix Fortnite

The post Esports in Blockchain: How blockchain technology could help esports appeared first on Deqode Blog.

Despite being one of the few games whose microtransactions strategy hasn’t come under fire from gamers (looking at you, EA), there are still a few loopholes in it. These loopholes bring on board two valid use-cases of blockchain. Let’s dig deeper into how blockchain could help games like Fortnite.

V-Bucks Trading: Fixing In-Game and Real World Economy

Blockchain could help in seamless, secure and transparent trade of V-Bucks with other players. It could allow players to gain a valid advantage outside of the game, for the hours they’ve put in-game. So, instead of getting rewarded with another skin that they might have hundreds of, players can exchange rewards that they earn for something that has actual worth – in the form of tokens. This real-world reward system, without the use of blockchain, has made headlines before. Who can forget the CS:GO skin lottery fiasco that raked in millions of dollars in profit for scammers?

With blockchain, this system could become absolutely secure for games like Fortnite.

The game developers just have to understand in advance that their games have incentives in place for these types of shady transactions, and then they can easily code smart contracts in a way that prevents illicit activities from taking place. In a blockchain based trading system, all kinds of value transfer is done through code that inherits properties from blockchain. So, if one wants to prevent a type of asset from being purchased with dollars and only accept an equivalent value in tokens, he could allow the same using smart contracts.

On the other side of things, Fortnite is currently selling in-game assets at an expensive amount – and the V-bucks economy isn’t that much scaled. If we imagine V-bucks as a token instead of a direct extension of fiat, there would be a world in which the prices of the items in the ‘Item Shop’ would fluctuate with demand, and players can earn this value by actually playing the game instead of paying for it. At some point, players may even be able to release their own skins and items that they can monetize, further increasing their interest in the game.

Verifiable In-Game Assets

Winning an in-game trophy is one of the most fun aspects of any game. By just equipping your characters with the items you’ve earned, you can show off your in-game achievements and prowess. But here’s the thing: these in-game items can often be manipulated by scammers. This could be done via black hat practices or simply purchasing off of another player on unsanctioned markets.

For instance, take another hugely popular game, Rocket League. In RL, the items are completely tradable. So if you possess one it could mean two things. Either you have put in a lot of time perfecting your game to earn it, or you are just really rich. Now, blockchain’s main use-case in gaming is the ability to truly own and trade your assets. But an overlooked use-case is that blockchain can verify the method by which a player has obtained an item.

With blockchain, game devs could put in an asset that is completely exclusive to an in-game achievement based on skill.

This would give these items an added sense of admiration when equipped to the character. Simply having this information stored in blockchain would also allow developers to implement cool user interfaces to brag about game achievements. Keep in mind that the Fortnite Tracker website does have some of this information. But, a game stored on the blockchain would have all information on players by design.

Must read: The 101 of Blockchain in Fintech Industry

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Establishing a general definition of supply chain finance

(Supply chain finance is) The use of financial instruments, practices, and technologies to optimize the management of the working capital and liquidity tied up in supply chain processes for collaborating business partners.

Euro Banking Association

Supply chain finance refers to the use of short-term credit to balance working capital between a buyer and a seller, thus minimizing aggregate supply chain cost. This decreases currency risk and ultimately improve liquidity. To understand how blockchain could fit in and improve supply chain finance, we need to establish a standardized definition, for the sake of this article.

A traditional supply chain finance model typically involves 3-4 parties:

1. Buyer
2. Supplier
3. Financiers
4. Third-party technology firm that provides and manages SCF solution

Further, supply chain finance could be broadly classified into two categories

1. Buyer led SCF: The buyer’s payables are used as collateral in a financing agreement

The buyer (usually a large company) starts the process of choosing invoices – this means that he will pick the ones he will ask the financier to pay early. Post this, the supplier looks at all his invoices, and decides which invoice financier should pay early. It is a collaborative project between the ordering party, the supplier and the financier.

a. Reverse Factoring

• The buyer purchases supplies and the invoice is processed
• The buyer’s financing institution or third-party funder is notified and then provides early payment to suppliers on behalf of the buyer
• In exchange for receiving early payment, suppliers will provide a discount to the financing institution. Suppliers are generally willing to accept this trade-off because the rate of financing offered to them is based on the credit of the buyer. It tends to work most effectively when the buyer has a higher credit rating than the supplier
• After the financial institution pays the supplier, the buyer is free to negotiate new payment terms with them and extend their DPO. This allows the buyer to hold onto their cash for longer and use it for other business purposes
• Buyer pays the financing institution, and they pay the full cost of invoices instead of the discounted rate provided by the supplier to the financing institution

This leads to the following for each entity:

Supplier:

Suppliers can gain access to capital much earlier than normally would be the case and can subsequently lower their Days Sales Outstanding (DSO), which ultimately means they get paid sooner. While the receipt of early payment comes at the cost of a discount, the cost of financing they receive through the SCF program is more affordable than they would be able to receive on their own. Thus, they come away with comparative gains.

Buyer:

On the buyer side, companies are able to forego payment for much longer than would normally be the case, which subsequently increases their Days Payable Outstanding (DPO) and allows them to manage working capital levels by holding onto their cash for longer periods of time. This allows them to either extend the length of investments and generate larger returns or pay off other cash outflows. (Traditional SCF programs tend to be most successful for large corporate buyers who would prefer to hold onto their cash for longer in order to meet short-term liabilities and cash outflows or to generate greater returns on cash through investments in the market.)

Financier:

The participating financial institution in a traditional SCF transaction also benefits, as they provide payment to the supplier on behalf of the buyer at a discounted rate, but end up receiving payment in full from the buyer at a later date, thus walking away with a net profit.

b. Dynamic Discounting

Using dynamic discounting, buyers accept the drop in their DPO in exchange for early-pay discounts from their suppliers. Dynamic discounting programs are often self-funded, meaning the buyer uses their own available cash to pay suppliers directly and does not involve financiers. This approach is valuable for firms in cases when the returns available through discounted invoices are just as high if not higher than what they could generate through alternative investment opportunities in the market.

2. Supplier led SCF: The supplier’s receivables are used as collateral in a financing agreement

Invoice Factoring
A supplier sells its accounts receivable (invoices) to a financier at a discount and sometimes factors its receivable assets to meet its present and immediate cash needs. It might also factor its invoices to mitigate credit risk. Invoice factoring is supplier-initiated, unlike reverse factoring. The interest rate offered by the financier for reverse factoring is lower as compared to invoice factoring.

Many SMEs are too small for any bank to consider. They won’t put a lot of time into factoring small invoices when they could earn more processing invoices from a larger enterprise. For example, factoring in India delivers a reported $219 Billion USD to the country’s micro, small, and medium enterprises (MSMEs). But that leaves another $188 Billion USD on the table as “unmet demand”—invoices no one else wants. On our platform, it will be possible for financiers to bid on sets of invoices with lower risk.

Current SCF (Reverse Factoring) Solutions

Current SCF solutions are basically a buyer-side implementation of a supply chain program, built upon platform provided by a third-party technology solution provider.

Buyers invite target suppliers to participate in the program. Once a supplier accepts the invitation, they are onboard into the platform and their finance team is trained on how to use the processes and tools that will facilitate invoice trading.

After onboarding the following steps take place

• Supplier submits an invoice to the buyer following normal protocol.
• Buyer approves the invoice and uploads it on the platform.
• Supplier selects the invoice for early payment and requests the financier on the platform.
• Financier receives and processes the request and provides early payment to the supplier. Total amount minus financing fees or discount.
• On the invoice’s due date buyer is notified to pay the financier.

Issues with the existing system

Evidently, the current system faces several huge problems, described as follows:

1. Centralization, as SaaS provider controls the database

2. Additional risk, as suppliers can double spend the same invoice to multiple financiers

3. Delayed timeline, as more steps are involved before the supplier’s invoice is approved by the buyer. These steps are slow due to multiple intermediaries and manual contract execution. Here’s a brief overview of them:

• Buyer send the purchase order to the supplier and supplier responds with the invoice.
• Payment terms between the buyer and the supplier are established via a financial agreement. Financial agreement stores details such as quantity of goods sold, price and delivery time.
• Buyer’s bank receives the agreement for review. The bank reviews it and provides the Letter of Credit (LoC) to a correspondent bank and that bank shares the LoC with the supplier’s bank.
• Supplier’s bank notifies the supplier. Supplier initiates the shipment. Several manual inspections take place while the goods pass from the customs of both importing and exporting countries.
• Finally, the buyer receives the shipment and now he can approve the invoice.

4. Pre-shipment and at-shipment financing are risky due to the limited quality of available data.

5. Lack of visibility as different entities want to keep their data private.

6. A supplier may have to on-board different platforms for different buyers.

Suggested Reading: Banking on blockchain – how blockchain is reshaping the banking industry

How a blockchain based system would revolutionize supply chain finance

Blockchain technology clearly has the potential to be a game-changer for supply-chain finance. A blockchain-based supply chain finance solution will essentially enable all parties in a supply chain finance solution to act on a single shared ledger more specific via smart contracts.

We need to keep in mind that a public blockchain or a cryptocurrency is not suitable for a supply chain finance solution as businesses do not want all of their data in public. The best solution here is permissioned blockchain with the capacity to form channels where participating entities can share data privately.

Permissioned Blockchain Promises

• Decentralization: Every participant runs their own node and hence everyone stores the share data.
• Immutability: Transaction history is maintained. All digitally signed transactions are recorded by all the participants hence it is not possible for a participant to deny their actions.
• Selective transparency: Data that is mutually important can be updated in real-time giving transparency. In a blockchain based system, it is possible to create channels between parties. Information shared via channels will only be visible to parties involved in creating that channel. For example, a financier might promise different reverse factoring discounts to different buyers. This information will not be public and one buyer will not know the discount that was promised to the other party.
• Trust: The system can eliminate problems with disclosure and accountability between companies whose interests are not necessarily aligned, thereby providing a solution for limited information sharing in the supply chain because of low trust
• Safety: Blockchain is based on cryptographic functions and digital signatures. it also brings in transparency along with it.
• Efficiency: Cost reduction, by removing paperwork for orders and invoices – and increased speed, by automation and shared flow of information. The system leads to a faster and more efficient sending, approval and payment of orders and invoices, and quick tracing of errors.

Must Read: Key concepts of blockchain – the very basics of blockchain technology

General blockchain use-cases examples

1. Blockchain can cut onboarding cost by reducing the need for extra KYC checks. By sharing checks and registering them on a blockchain, banks will no longer have to do a second check. This allows for a reduction in onboarding costs and the inclusion of more SMEs in RF.

2. A 2016 study found that invoice fraud costs UK companies 9+ Billion pounds ($13.2 Billion USD)1 every year. All in all, experts say about 1 in 100 invoices is fraudulent. A supplier using invoice factoring service could approach more than one financiers with the same receivable at the same time to get duplicate financing, a classic double-spend problem. Blockchain has the perfect use case for this scenario, banks can share the invoice data ( to ensure privacy they can share only the hash of the invoice data) with one another and prevent this kind of fraud.

Suggested Reading: The 101 of blockchain in fintech industry

Overview of the Solution

The solution takes into account a single consortium of buyers, financiers, suppliers, and shippers. It will have a single common platform for every party -and every entity will benefit from it. The platform will be a hybrid of both buyer and supplier-led supply chain finance solutions and will provide different options. As more and more buyers join the consortium this platform will become one shop stop for the financiers and suppliers. Selective transparency provided by permissioned blockchain ecosystem – via channels -will make it possible for all the entities to work together without trusting each other and with far more efficiency. Some problems such as invoice fraud that exist in present SCF platforms are perfect use-cases for blockchain and can be easily countered as explained above. All these factors make permissioned blockchain the perfect use case for solving SCF issues.

In the proposed solution, all members of the consortium will run their own node. Different participants will be able to create channels among themselves where they can share the data that they want to keep private from other members of the consortium.

As explained in the figure above

Channel 1: Buyer1, Supplier1, Financier1 create a channel where they can set goods amount, price, financing fees for a reverse factoring solution. This data will be immutable and selectively transparent.

Channel 2:  Shipper1 creates a channel with  Buyer1, Supplier1, Financier1. Each participant on the channel will be aware of the status of the shipment. Quality of data available is high and that will be helpful for pre and at shipment financing.

Channel 3:  Supplier1 creates a channel with Buyer2 and Financier2. This channel is different from channel1. This way Supplier1 can offer different rates to different buyers for the same product and they will not know.

Channel 4: Financier1 and Financier2 share a channel where they share the KYC details. This cuts onboarding cost by reducing the need for extra KYC checks. Our platform also supports invoice factoring. In this case, supplier can submit the same invoice at the same time to both of the financiers. This channel will help to prevent such invoice fraud. On this channel both financiers can share the unique hash of the invoice without sharing private clients details. They can also get to know if someone is trying to commit fraud.

Conclusion

As the solution shows, blockchain is a game changer for supply chain finance. Financial services companies should start shaping their technology strategies around blockchain because it will clearly propel them to become an industry leader. For more details regarding the solution, please drop your email here.

The post An Affair of Two Chains: Blockchain Meets Supply Chain Finance appeared first on Deqode Blog.

It takes 10-17 years to bring a drug to market successfully. The loss to a pharma company due to a single drug recall is colossal. Drug recalls not only result in financial loss for the producing company, but they also cause damage to the company’s reputation. The actual recall is not even the most costly aspect of drug recalls for most of the pharmaceutical companies.

Blockchain for drug supply chain could bring an end to all the major drug recall problems. Use of blockchain across the pharma supply chain can mitigate the number of inefficient and faulty drugs reaching the market, making the drug development process more trustworthy and error-free, ultimately reducing the drug recall numbers.

Drug Recalling

The average cost to develop and gain approval of a new drug is $2.558 billion.

Tufts Center for the Study of Drug Development

Definition

A drug recall is an action taken by a pharmaceutical manufacturer or distributor to remove a product from the market. In most cases, companies initiate a voluntary recall after discovering potential problems that are in violation of the law. In other cases, the FDA recognizes the problem and requests that the company recall the product. If the company does not comply, the FDA may pursue regulatory action to have the product seized.

Recalls may occur at the consumer, retail or wholesale level. A consumer-level recall – which includes individual patients, physicians and hospitals – are the ones we hear about most often, and may require action on the part of the consumer. Retail-level recalls are directed at retailers and providers. Wholesale-level recalls involve distribution between the manufacturer and retailer.

Classification

Drug recalls are classified in the US by the FDA into three different categories:

1. Class I – Class I recalls are the most serious recalls. The FDA issues Class I recalls when there is a defect with a drug – due to contamination of raw materials or labeling that could lead to serious health problems or even death.
2. Class II – FDA issues Class II recalls when exposure to the drug may cause a temporary or medically reversible health problem or has a slight chance of a serious problem.
3. Class III – FDA issues Class III recalls for products that violate FDA regulations. For example, a bottle that doesn’t contain the number of pills stated on the label – but are unlikely to cause adverse health consequences.

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Causes of Drug Recall

Hazardous to Health

The risks associated with some medicines become evident only after their widespread use. For example, according to WebMD, initial tests on phenylpropanolamine, a once-popular ingredient in weight loss drugs and decongestants, did not uncover the fact that it caused hemorrhages in the brain. If the FDA receives reports that a medication causes unexpected side effects, it will issue a recall.

Mislabeling

Sometimes the instructions on a medication label are unclear or misleading, which can lead to an overdose, under-dose or other adverse effects. If the FDA receives reports that patients are taking a drug incorrectly due to insufficient instructions, it will recall the medication.

Contamination

There are several steps in the process of producing a medication and delivering it to patients. Therefore, there are plenty of opportunities for a drug to become contaminated. Often, another pharmaceutical ingredient contaminates a medication which may or may not cause adverse reactions.

Mismatched Drugs

Though rare, the medication inside a drug package sometimes is not the correct medication.

Manufacturing Defects

Mistakes during the manufacturing process of a drug could affect its purity, quality, and potency. In turn, the drug does not actually help patients and causes health issues for the consumer.

Blockchain in Drug Recalling

The major causes for a drug recall include failed specifications, mislabeling and contamination. Blockchain can act as a preventive measure for drug recalls. In case of inevitable recalls blockchain can facilitate targeted recalls.

Solution for Mislabeling

Labeling is a critical procedure for maintaining compliance, ensuring brand consistency, improving operational efficiency, and supporting business growth. Legacy labeling solutions maintain offline data sources often relying on manual data entry or uses individual productivity tools like spreadsheets.

Mislabeling is the cause of 14.3% of all the pharmaceutical recalls.

FDA

Blockchain can help in overcoming local labeling inefficiencies. It enables the dichotomy of privacy and transparency to coexist. A permissioned ledger stores critical drug information protecting it from attackers. The authenticated parties will get access to this ledger.

The distributed ledger technology of blockchain enables all manufacturing sites to have the replica of critical drug information required for labeling. There is no need to manually extract the data from a traditional database system. The information is available in real-time, in a consistent and recurring format.

Suggested Reading: Understanding blockchain, its scalability issues, and solution

It preserves the brand image and the labeling is regular across all the manufacturing sites, worldwide.

The data available on this distributed ledger has been verified by a trusted authority at every stage of the drug development process. Thus, adopting blockchain eliminates the case of labeling a drug with false or misleading information. With blockchain, FDA can directly monitor the labeling process.

Solution for Failed Specifications

Poor-quality medicines can reach the market through substandard production of legitimate drugs because of inadequate quality-control processes during manufacturing.

Blockchain can tackle this issue by providing visibility at all points across the pharma supply chain.

Blockchain achieves this visibility by tagging drugs with unique barcodes. These barcodes are scanned and their records are kept on a blockchain in secure digital blocks. These records will be updated in real-time as the drugs are transferred from one entity to the other in the supply chain. Parties with authorized access can check the records anytime. This mechanism of tagging the drugs to trace and track them is known as serialization.

This security architecture verifies every input and output from all the stages of drug development, with progress to next stage dependent on whether it meets the required standards of drug efficacy, efficiency, product specification, substance specification, and other expected results.

Thanks to multi-party computation, all the stakeholders can validate the results of clinical trials and hence assure all drug specifications are correct. Also, it ensures that CGMP (Current Good Manufacturing Practice) regulations are met to assure drug quality.

Blockchain technology allows to identify faulty drugs at the very early stages of development. It safeguards the manufacturer from all the problems that it would have to deal with, if a faulty drug reached the market.

If a discrepancy is found at any stage, the drug development process can be improved to meet the specified standards. Greater visibility into the drug development process enforces the manufacturers to be more CGMP compliant.

Suggested: “An Affair of Two Chains: Blockchain Meets Supply Chain Finance“

Targeted recalls

Although blockchain is an excellent preventive measure for drug recalls, some recall cases are inevitable. These cases are discussed below.

1. Only after widespread use do the risks associated with some medicines become evident.

2. Manufacturers may recall some drugs which are contaminated on their way from the manufacturer to the retailer.

3. Cold Chain Inefficacy- If a portion of a lot of a drug had been stored at a temperature that compromised the chemical composition of the drug.

4. Manufacturers may recall an FDA approved drug due to the FDA’s regulations and policies revisions.

Learn how we overcame these issues for a pharma company by clicking here.

Serialization

It helps manufacturers issue targeted recalls of individual packages of the contaminated products. The manufacturer could issue a recall for only the affected items based on the visibility of the status and movement of each individual unit’s unique serial number. Thus, targeted recalls enable manufacturers to recall specific units of a product instead of a broad, excessive amount.

Conclusion

Blockchain holds immense potential as a unified solution for efficient and secure management of pharmaceutical supply chains around the globe. A major benefit of blockchain, and perhaps the most important for the pharmaceutical industry is that it provides end-to-end visibility. Drug recall is a severe issue in the pharma industry and the number of deaths related to this issue has been increasing in recent years. Blockchain can reduce the rate of drug recalls due to mislabeling and failed specifications. It also helps in issuing targeted recalls of the affected drugs instead of the whole lot.

To learn more about how blockchain can transform the drug supply chain, drop your email address here and get a free consultation.

The post Blockchain for Drug Supply Chain: A Strategic Approach to Drug Recall appeared first on Deqode Blog.

To understand where blockchain could fit in auditing processes, let us establish a standardized audit timeline.

• The organization’s management prepares the financial report. They prepare it in accordance with legal requirements and financial reporting standards.
• The organization’s board approves the financial report.
• Auditors start their examination by gaining an understanding of the organization’s activities and considering the economic and industry issues that might have affected the business during the reporting period.
• For each major activity listed in the financial report, auditors identify and assess any risks which could have a significant impact on the financial position or financial performance, and also some of the measures (called internal controls) that the organization has put in place to mitigate those risks.
• Based on the risks and controls identified, auditors consider what management has done to ensure the financial report is accurate, and examine supporting evidence.
• Auditors then make a judgement as to whether the financial report taken as a whole presents a true and fair view of the financial results and position of the organization and its cash flows, and is in compliance with financial reporting standards and, if applicable, the Corporations Act.
• Finally, auditors prepare an audit report setting out their opinion for the organization’s shareholders or members.

Suggested: Key Concepts of Blockchain

Where does blockchain fit in?

Maintaining transparency in audits.

One of the most appealing aspects of blockchain technology is the degree of transparency that it can provide. The technology can allow for the immutable tracking of anything across the audit process. The use of data visualization will allow auditors to not only provide assurance over the systems, but it will also allow consulting firms to assist with planning and decision making. Following are some of the key points for usage of blockchain in audit transparency:

1. The entire audit process will be moved to blockchain technology. In a nutshell, this will provide two benefits:
   • Many organizations hire multiple audit teams. There is a need for a corruption-free ecosystem for synchronization between audit reports between the auditing teams. When we use blockchain for auditing process, auditors will be aware of the audit process done by another audit team. This will increase the genuineness of the system.
   • The organization will be aware of the audit process, thereby tracking the audit process lucidly.
2. The audit reports will be put on the blockchain. The next auditors can verify if the audit is performed in a right manner.
3. The financial reports of the organization can be put on the blockchain. This will ensure that the reports are immutable and cannot be denied by the organization later.

Removing dependency of the enterprise in auditing.

An audit is often a heavy process. It requires professionals to spend a significant amount of time to review a large number of transactions in the clients’ books.

As blockchain has its foundation in the distributed ledger concept and cryptology. It promises transparency, immutability, security, auditability, high cost-efficiency and is ever available. Blockchain technology has an immediate application in the external confirmation procedures of audit verification.

External Confirmations

External confirmations are a critical part of all audit processes. They give the audit team the ability to check external sources of the information provided internally by the company. But what if the ledger of such an enterprise is in a decentralized ledger?

In a scenario like that, the auditors would be able to obtain all the information related to the financial transactions of a company without the need to confirm them through an external confirmation procedure, hence saving time and resources.

An environment where all the ledgers would be easily accessible, cross-checks of transactions would be still possible. So, if company A has a liability with company B, by cross-checking the respective public ledgers the auditors or stakeholders can automatically verify whether the transactions are correctly recorded.

Conclusion

Apart from the stated benefits, ready-to-access information will also facilitate the review of bank details, where the external auditors could examine all the information pertaining to a company and commercial banks, including bank accounts, loans, guarantees, and signatory powers. Blockchain can remodel the conventional techniques for invoicing, paperwork and contracts as it provides a canonical source of truth. To understand how blockchain can help your financial services firm, drop your email here.

You may also like: Forecasting Blockchain’s impact on SMEs in the Coming Five Years

The post Fixing Traditional Auditing: A Brief Overview of Blockchain in Auditing appeared first on Deqode Blog.

62% of the auto industry expects blockchain technology to become a “disruptive force” within it by 2021.

IBM

Although the automotive industry realizes the potential impact of the blockchain technology, it is still in the early stages of blockchain adoption. Our analysis team has identified a broad spectrum of viable blockchain use cases in automotive. These use-cases will help in facilitating collaboration among participants and enabling capabilities for new business models.

Blockchain in Vehicle Manufacturing

Tracing and verification of parts

In a blockchain-based manufacturing supply chain of vehicles, information related to vehicle parts such as its manufacturer, date of manufacturing, etc. will be captured and stored on blockchain. As the parts change hands while moving from the manufacturer to the end customer, information will keep updating on the blockchain. This will enable all the stakeholders – such as the service center, car manufacturer and customer to trace and verify the origin of vehicle parts through the supply chain to the original manufacturer.

A blockchain-based system will provide a unique digital ID for each part manufactured which will contain key data, such as manufacturing date and ownership-related information. In case of part failures or accidents, blockchain could help to identify the root cause, decide who should be responsible, and settle disputes.

Targeted recall

A solution based on blockchain technology will enable car manufacturers to identify vehicles that contain defective parts, and issue targeted recalls or service bulletins for these vehicles.

A blockchain based solution will help drastically reduce the costs of recalls. The solution will also track the status of the recall. For instance, the solution can track the vehicles received by the dealer for repair. This tracking can be used for regulatory reporting to the government.

Suggested reading: A strategic approach to drug recall

Process Optimization

The automotive manufacturing process has an opportunity of implementation of various use cases. For example, a distributed ledger can contain bills of lading for vehicle components, quality-inspection records created during the manufacturing process, and WIP information for each vehicle assembly from start to finish. This would help the required authorities track the parts in real-time.

This blockchain use-case in automotive supply chain provides inventory visibility to the manufacturers like never before. With such a great degree of visibility, manufacturers can predict demand spikes, recalls etc. and manage their manufacturing schedules.

Connected supply chain

Blockchain technology can be applied to each of the phases of the supply chain: from product inception, designing and development to distribution and financing. It will connect automotive supply chain from manufactures automotive organizations to seamlessly order or sell, track and pay for goods once they arrive at their destination. This will have the following impact:

• Firstly, the relevant data will be captured, stored, and updated on blockchain. Transactions will be viewed and verified by all the parties in the blockchain network.
• Secondly, the initiation of payment processing could be done automatically through smart contracts.

Connected IoT sensors and smart devices could measure the condition of containers. IoT applications help to monitor, manage and control devices remotely and create new actionable insights from real-time data. IoT devices can record and maintain the complete history of a vehicle – including repairs and maintenance history.

Suggested reading: Blockchain meets supply chain finance

Unorthodox Blockchain Use Cases in Automotive

Peer to Peer Sharing Ride-sharing and on-demand mobility services (MaaS)

A blockchain-based P2P ride sharing platform will provide a trustless system for customers to rent out their vehicles for other people to use. Users and car-sharing providers (fleets, organisations or individuals) would register themselves on blockchain. Once all the relevant participants are present on the blockchain, they can exchange data securely and seamlessly. This car and ride sharing platform will allow individuals and fleet auto owners to lease their vehicles for short-term.

An authenticated user would be able to access this platform through a mobile app, which will provide the details of cars that are available for renting. A car could be booked and paid for using the app. Data would be stored in a decentralized manner – therefore the app would know how much to charge for the use, with the transaction securely taking place on blockchain. The app would also process all payments following completion of the trip and update the user’s record with a history of that trip.

Data associated with each vehicle:

• Vehicle Location
• Keys to unlock the car
• Agreement terms (Cost per mile, insurance details , etc.)
• Payment information

It is worth noting that rides using a blockchain-based platform wouldn’t require to be confirmed by any central authority – and the platform would efficiently handle the surge pricing mechanism.

Auto leasing and finance

A blockchain platform that facilitates vehicle tracking would be a game changer for auto deals. Dealer management system created on blockchain will leverage secured communication and eliminate data risks in the leasing sector. The platform would connect the involved entities when leasing a vehicle to a customer in a secure way. From performing KYC customer checks (e.g. licence and credit check) prior to leasing the vehicle, storage of leasing agreement/contract on the blockchain, to automated payment once the vehicle has been returned – the platform would seamlessly handle all processes.

Toll Booths

Vehicles will be able to pay their toll taxes automatically as they pass through the toll booths. IoT applications will monitor and detect the vehicle information, and send data to the distributed ledger. The smart contracts associated with the ledger will initiate payments from the vehicle owner.

Suggested reading: Guide to Smart Contracts

Conclusion

The automotive industry is in the very early stages of implementing blockchain at commercial scale. So, while it’ll take time for a full-scale adoption – it’s time that the companies start shaping their blockchain strategies.

Does your automotive business need blockchain? Drop your email here to find out.

The post Driven by Innovation: Why the Automotive Industry Should Take a Leap of Faith into Blockchain appeared first on Deqode Blog.

Blockchain in Energy Sector

Energy Blockchain Startups Raised $324 Million in the Last Year.

GreenTech Media

As more intermittent renewable energy flows into the grid and customers connect new equipment to produce, store, and consume energy, the need for platforms to manage increasingly complex energy systems is rising. Blockchain-based systems have potential to play a major role here.

Recognizing this, diverse entities have recently launched ventures to harness blockchain in different and unique ways, including both for-profit and nonprofit undertaking. Around half of them use a public blockchain; the other half use private blockchains. Most of these ventures are centered around “peer-to-peer” energy transactions and cryptocurrency-based electricity offers, but the range of applications also cover unique use-cases like the management of electric vehicles (EV) charging, or of renewable energy certificates. Here is a brief look at some actual use-cases of blockchain technology in the energy industry.

Microgrids

The traditional electrical supply models are challenged by microgrids. The term refers to a localised grid that can disconnect from the main grid and operate autonomously. It uses local sources of energy to serve local users, integrating the supply of energy from various producers, including local power generators and providers of renewable energy such as solar power. Consumers with their own energy production capabilities (wind turbines or solar energy systems) can sell their surplus energy production back to peers in the microgrid, on a pay-per-use basis (becoming ‘prosumers’). While physical microgrids are rare, virtual microgrids are on the rise using peer-to-peer energy trading.

Blockchain is becoming the key element in this transformation of electricity supply. It provides a distributed ledger to members of a peer-to-peer energy network (microgrids). It offers a reliable, low-cost digital platform for creating, validating, recording and settling energy transactions in real time across a localized and decentralized energy system. The technology’s relatively low transaction costs allow smaller energy producers to sell excess energy to their peers in the grid. This increases their share in market, and grid efficiency. Smart contracts facilitate the coordination of production data from solar panels and other installations, and execute sales contracts that allow for two-way energy flows throughout the network.

Renewable Energy Certificates

The small-scale green generators must make do with whatever price their local utility pays them because of the following two reasons:

1. The certification process for RECs is cumbersome and expensive for small suppliers, and has physical audits.
2. Power purchase agreements can only be negotiated by large green generators.

The price that local utilities pay can be volatile due to meddling by legislators as well as by the utilities themselves. Thus, the small green generators are exposed to higher levels of risk than the bigger players.

Blockchain can help here by storing generation certificates that are created by tamper-proof meters attached to solar panels. They could also store transaction records when the certificates are traded, so that the same unit of generation cannot be resold. By eliminating auditors, transaction costs and price regulation, this solution makes renewable-energy investment attractive even for small players. Introducing blockchain for RECs could reduce the cost of certification, eliminate onerous auditing and avoid non-market price controls, so that even a small-scale green generator could de-risk investments.

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Sustainability

One of the most immediate applications of blockchain to the energy sector is its use in record and trade attributes of sustainability. Examples of such attributes include whether a unit of electricity is renewable and how much emissions resulted from its production. The current systems to track such attributes are centrally managed, complicated, and prone to fraud.

Suggested Case Study: Learn how Deqode created a blockchain solution to streamline the process involved in energy supply

Moreover, the compartmentalization of platforms prevents seamless trading of attributes across regions. A decentralized blockchain network could enable transparent, accurate, and frictionless tracking and trading of these attributes, which would accelerate clean energy deployment and carbon emissions reduction.

Energy Financing

The use of blockchain and cryptocurrencies to raise funds for energy projects is not new to start-ups. These startups have an ICO to raise funds, to then develop, say, a peer-to-peer trading platform. They could raise funds for energy projects (which tend, overwhelmingly, to be clean energy projects). They may broaden the pool of potential investors in renewable energy projects by enabling a multitude of smaller investors to supply capital. Blockchain funding ecosystems might enable smaller investors and individuals to invest in projects to which they otherwise would lack access. The cost of solar and wind projects has fallen steeply. Large institutional investors and major corporations are becoming increasingly comfortable with investing in renewable energy projects.

Recommended: An Affair of Two Chains: Blockchain in Supply Chain Finance

Blockchain potential from a regulatory perspective

Blockchain could potentially have benefits for the energy industry from a regulatory perspective:

Verification

Blockchain could present the option to clearly verify the source of energy. It has the capability to provide clear and verifiable records of energy. This will make blockchain the first technology to make it possible for the source of energy to be determined. This would also make it easier to issue certificates for emission allowances and energy efficiency improvements, which would in turn simplify the complex systems currently used.

Clearing and Settlement

It is not only prosumers who may stand to benefit – but also transmission system operators. Using blockchains would allow them to clearly attribute clearing data to individual market participants. The planned introduction of smart meters will only help to allocate consumption quantities to a balancing group and to the electricity suppliers using that balancing group. A blockchain-based system would make it possible for the energy consumed to be clearly traced back to the point where it was generated. Overall, this would lead to significant cost reductions, with end users directly benefiting from a more efficient system.

Opportunities and Issues from a Consumer’s Perspective

Consumers would benefit from greater transparency and flexibility that blockchain provides. Because of:

• Lower transaction costs due to the elimination of intermediaries
• A larger number of market participants

The energy prices will start falling. Blockchain could replace some intermediaries currently operating and lead to a fall in transaction costs.

The possibility to fine-tune network operations, deployment of smart meters, smart contracts, and other new technologies will enhance flexibility. It will also promote customisation across all segments of energy consumption and sales. All of this could lead to following benefits for consumers:

• Lower transaction costs due to the cutting out of intermediaries
• Falling prices as a result of greater market transparency
• Simple options for customers to become a service/electricity provider
• Simple transactions (documentation, contracts, payment)

Must Read: Driven by Innovation – Why the automotive industry should take a leap of faith into blockchain

Conclusion

The existing solutions, however, face a few problems from consumers’ perspective:

• High transaction costs and low speed for public blockchain systems
• Possibly lack of acceptance on the part of consumers due to the thought of safety issues
• No authority in the case of disputes, no direct possibility of escalating conflicts

Deqode’s blockchain platform – Nucleus takes care of all these problems. It provides a fast interface with techniques that lead to low transaction cost. Nucleus also implements several encryption techniques that ensure data safety. It has a unique consensus algorithm that ensures easy, automated decision making in case of disputes.

We’d love to show you how we’ve helped several businesses in energy sector using blockchain and Nucleus. Drop your email here to get a free demo.

The post Powering a Sustainable Future: Viable Blockchain Use-Cases for the Energy Industry appeared first on Deqode Blog.

77% of senior financial services executives anticipate adopting blockchain in their production systems or processes by 2020.

PwC

Our analysis team at Deqode projects how blockchain is bringing value to the table before establishing viable use-cases. Hence, the use-cases in this article are based on several questions from Deqode’s VAF (Value Analysis Framework). We’re putting a part of the VAF questionnaire here, for reference.

Value Analysis Framework – Blockchain in Banking – P1

1. What are the regulatory and compliance issues that require data handling?
2. What are the serious problems that arise due to data tampering? Which entities face the aforementioned issues?
3. What are the usual cross-bank communication issues that banks face?
4. What are the issues related to maintaining user records?
5. Which three processes, according to you, are the most time-consuming in banking (e-banking or otherwise)?
6. What are the data provenance issues that banks face?
7. Which elements of the banking ecosystem require an increase in transparency?
8. What are the issues related to the existing system for data reconciliation? Are the costs of data reconciliation and verification high?
9. Does the intermediary exist due to lack of trust, and is it taking a high fee?
10. Is the same information being stored in multiple locations by multiple participants?
11. Which entities in the banking ecosystem involve data visible exclusively to a certain group of people (authorities), and strict confidentiality of record?

The total viable use-cases identified using the complete VAF were eight. We’re publishing four of them in this article.To know more about how blockchain could help your financial services firm: Drop your email address here

Suggested reading: Blockchain meets supply chain finance

Blockchain Use-Cases for Banking

1. Vendor Financing

Vendor financing programs provide credit facilities such as letter of credit, bill discounting and financing against purchase orders and invoices. Banks also offers structured financing services against confirmed purchased from their customers.

Issues Associated

Time-consuming process

Firstly, due to manual processing of the transaction and lack of automation at any point, it takes minimum 4-5 days for the vendor to collect funds from the bank against the relevant documents. As the funds remain blocked as long as the processing takes place, the working capital situation of vendors is affected.

Lack of a mechanism to track the status of invoice throughout the process

Secondly, in the current system, all the participants (banks, client and vendors) cannot simultaneously track transactions in real-time. The status of the invoice is known to the participants only through emails.

Potential of fraud

As an invoice changes multiple hands throughout the lifecycle of a transaction, there are high possibilities for frauds in the form of tampering of documents, causing a delay in the release of funds, and funds being disbursed to the wrong entity. In addition, once such a transaction happens, it is difficult to keep a track of such fraudulent practices.

Solution

1. Clients can transfer invoices to blockchain. Once they are on-chain, smart contracts could help in the automating verification and disbursement of funds to the vendor within minutes. It could also help in triggering automatic debit to customer account on the due date

2. With the transaction being up on blockchain, all the relevant parties can view and verify the processes. There is only one source of truth and transactions cannot be processed further unless all the relevant parties agree and authenticate it.

Suggested: Understanding Blockchain, Its Scalability Issues, and their Solutions

2. KYC and Cross Banking Communication

KYC norms mandate every customer of the bank to submit several identity-based documents. The process constitutes of collecting, tracking and storing huge amounts of user data and this data is reported to regulatory agencies.

Issues Associated

Regulation issues

Regulation rules are changed often – therefore adding more compliance burden on the banks.

Disparity in specifications

Every bank has their own specifications they adhere to. Due to this lack of standardization, complying to each request in a customized way is time-consuming.

Customer relationship issues

A customer has to provide the same information to different banking entities, sometimes in the same jurisdiction. This is quite tedious. Moreover, banks may even have more follow-ups periodically for KYC.

Solution

1. Smart-contracts can automate verification of the document.

2. Whenever new data is needs to be appended, the ledger could enable encrypted updates to the ledger. These updates can be accessed by other authorized entities in real time.

3. As a trust sign for future transactions, a digital identity of the on-boarded customer can then be used. The most important use of digital identity is cross-bank communication, where it is required between banks to share data for various purposes.

4. For cross-bank communication, a better way could be to maintain a distributed ledger between banks. The concept of channels in DLT could facilitate sharing data between banks, thereby maintaining the dichotomy between privacy and transparency.

3. Contract processing

Banks provide services to businesses by acting as an intermediary between two contracting parties, securely storing contract documentation, holding money in an escrow, or guaranteeing a loan.

Time-consuming process

Firstly, the process is time-consuming for all parties as it often requires multiple, in-person visits to the bank to go over paperwork.

Duplication of effort

Secondly, if there are any changes in the terms of the agreement, the whole verification process has to be repeated for all the parties. Moreover, the process of verification is very time consuming and redundant.

Maintaining physical records of documents

Thirdly, this process involves a lot of paperwork and is labour intensive. So, heavy dependence on the physical copies of the documents increases the risk and makes the process more open to error and fraud.

Solution

Banks can use blockchain technology to build secure digital lockers that store sensitive documents. By creating and maintaining them in a digital locker, banks can enable all parties to easily and securely collaborate on documents. Benefits include:

• Better customer experience, as customers no longer have to make multiple bank visits
• Faster and easier document verification and approval
• Increased security and ease of access for documents

Instead of meeting in-person to create and update bank guarantees, the borrower, lender, and bank can all collaborate in real-time on documents stored in a secure digital locker. Therefore, it makes the system more efficient.

4. Syndicated Loans

Corporations undertake multiple large projects such as the development of roads, train systems, airports, factories, new business centers, etc. which require large-scale financing. Also, institutions come together to form syndicates to procure large funds and diversify the financial risk among their members.

Time-Consuming process

Selection of members based on financial soundness and industry expertise, evaluation of borrower’s financial background, and finally, negotiation of terms and conditions is a tedious and time-consuming process for the lead arranger.

Intermediary fees

Agents appointed for managing and administering the process take high fees, therefore it makes the overall process very costly.

Manual Processing

The procedures of syndicate banking is manual and paper intensive – so, it makes the whole system inefficient in terms of time and cost.

Duplication of efforts

The lack of technology for due diligence and underwriting causes referencing for different applications and sources during the process. The document also leads to the risk of fraud.

Delayed settlement cycles

Involvement of intermediaries and use of obsolete technology leads to delayed settlement cycles for payments. Therefore, this leads to increased default risk and locking up of capital.

Solution

1. Automated selection criteria for syndicate formation in programmable smart contracts – therefore faster syndicate formation.

2. Agreements, contracts, terms and condition documents etc. can be digitized on the blockchain, and validation and checks are automated.

3. Automated due diligence and information for loan underwriting through blockchain, thereby reducing the turnaround time.

4. Blockchain can facilitate near real-time funding and payment settlements with activities executed via smart contracts.

In Conclusion

Post crypto crash, blockchain technology has stepped up to have strong, genuine use-cases for financial services – with banking leading with a lot of viable use-cases. It’s 2019, and it will definitely take time for the industries to adopt blockchain as a whole – but it’s clear that a long term investment in the technology will yield results.

To understand how blockchain could fit in your business processes, drop your email address here and get a free consultation.

You may also like: The 101 of Blockchain in Fintech Industry: An Introduction to Blockchain in Financial Services

The post Banking on Blockchain: How Blockchain is Reshaping the Banking Industry and Transforming its Processes appeared first on Deqode Blog.