Blockchain Transformation For Finance

Joel Bernstein

Part 3 in the 3-part “Finance and Intelligent Technology” series by Tony Klimas of EY and Joel Bernstein of SAP.

What is blockchain? Yes, it’s a distributed encrypted ledger that ensures the validity of transactions and is virtually impossible to hack. But what does this mean?

What it means is trust.

At its core, blockchain technology is potentially transformative thanks to its ability to programmatically validate transactions and embed information into the ledger – thus building trust directly into those transactions without third-party intermediaries.

For financial transactions, these third-party intermediaries are typically banks. With blockchain – the technology supporting cryptocurrencies – transactions are self-evidently valid by the nature of the system that processes the transaction. That means banks have a diminished role as trust brokers.

Disruption for finance

For finance in particular, this is disruptive. Take accounts payable, for example. In a blockchain world, transparency is built in, such that identity is unquestionable. Payments are made directly to the transaction partner, encrypted with private keys, and then validated by every computer in the blockchain network – thus making the transaction inviolable and fully visible. If a transaction partner changes banking info, there’s no need for the AP department to get involved in updating the records, or for someone having to validate, “Yep, that’s me, send the money over.”

This is only one example. During my conversation with Tony Klimas at EY for this blog series, he told me about a leading manufacturer of gaming systems that has gone live with a blockchain approach to content rights and royalty management.

“Royalty calculations on gaming systems can be exceptionally complex,” Tony said. “Depending on the content purchased, the manufacturer may need to pay authors, songwriters, developers, and production houses. Payments can take as long as 45 days.”

The blockchain approach that Tony’s customer is using finds a way around an otherwise clunky process of manually reconciling royalty-payment transactions. “Now payments can be made almost automatically. This gives all participants a lot more visibility and allows them to perform their accounting accruals on a daily basis, which improves forecasting,” he explained.

Moving along the hype curve

All intelligent technologies are subject to a certain amount of hype as they’re introduced to the market. In my last blog in this series, we pointed out that intelligent cloud technology has by now passed the apex of the hype curve and is well on its way to widespread adoption. Blockchain, comparably, is still climbing.

“Currently, live implementations tend to focus on targeted use cases,” Tony remarked. “Broader usage and wider acceptance will come with experience and expertise. Customers are encouraged to tinker, try some proofs of concept, and get used to the technology. It’s still rather early. Expect progress to continue apace.”

Indeed, it seems that more and more use cases are found every day – such as fraud prevention, compliance for critical industries such as pharma, and the authentication of precious jewels. One promising development for finance is the potential to prevent money being stolen during cash-payment transactions between buyers and suppliers. This is a big problem that costs businesses billions of dollars every year. For transactions executed using blockchain technology, this problem goes away.

The need for improved performance

What currently stands in the way of more widespread adoption is performance and scalability. Take Bitcoin, for example – the single biggest use case for blockchain out there today. Bitcoin limits the block size to 1 megabyte of data, which reportedly translates into approximately three transactions per second. Compare this to Visa, which processes approximately 2,000 per second.

How do you fix this and other challenges? Maybe you don’t. Maybe you move to another platform – Ethereum, Ripple, Litecoin, Monero, the list goes on. Or maybe you wait. The point is that progress is being made with the technology.

And for the intelligent finance organization, what lies ahead is a lot of promise. Imagine companies running their ERP on blockchain technology. How would this change the way business is done?

Explore Best Practices And Tips For A Fraud Mitigation Program.

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Joel Bernstein

About Joel Bernstein

Joel Bernstein is the CFO for SAP Global Field Finance, which includes responsibilities in the Cloud Business Group, Digital Business Services, and Global Customer Operations. In this role, he is responsible for leading the financial activities and profitable revenue growth for the company’s customer go-to-market organization and driving financial support for the Cloud and Professional Services organization. Joel’s direct Field Finance organization includes all finance functions in the multiple regions and market units worldwide for all SAP revenue-generating businesses. Prior to being promoted into this global position, Joel served as CFO for the SAP North America region. There he led all field finance-related activities for the United States and Canada. An accomplished finance professional, Joel earned his Bachelor of Science degree in Accounting at Wilkes University. He is also a member of the American Institute of Certified Public Accountants. Joel is an ardent supporter of SAP’s social corporate responsibility initiatives, often serving as the executive sponsor for programs that connect SAP employees in the communities where they live and work. Reflective of that commitment, Joel is a member of The Franklin Institute’s Board of Trustees, an esteemed organization founded in 1824 whose mission is to inspire a passion for learning about science and technology.