Blockchain technology has made a name for itself the past years, its popularity and fame have grown rapidly, although it has been around for about 10 years, only ''recently" the technology gained global attention, mostly due to the Bitcoin and its exponential growth. Everyone seems to be investing in crypto currency, or at least reading in to it “just in case”. And to be honest, they probably should, for the reality is that we are digitalizing rapidly, in every aspect of our lives. The question is only, when will cryptocurrency take over? Well, thoughts on this differ, for it wouldn’t be safe enough, or it would take a long time to move everyone towards blockchain technology, and many more obstacles. However, since the introduction of blockchain technology in 2008, we have come a long way and so the technology has developed itself rapidly.
And so, no matter the many obstacles we have to overcome, one thing to agree on, blockchain is the future. What does that mean for companies and their accounts payable process? IBM wrote a report on how blockchain will disrupt financial processes as a whole. The report uses the accounts payable process as an example to show how blockchain could change our finance processes and make them more transparent, efficient and cost effective.
IBM describes four fundamentals for blockchain, which help understand the impact of blockchain on financial processes; distributed ledger, consensus, smart contracts, and permissions. These four fundamentals on which the technology is built, are the main reason that blockchain technology can help companies improve their financial processes. What is it though that this technology helps improve? The main improvements; reducing manual input, one communication platform, reduced costs and more accuracy which leads to fewer mistakes. There is a automation tool on the market that already has similarities to blockchain, Ariba.
SAP developed Ariba, a digital procurement platform. Getting back to accounts payable, Ariba is built to speed up the AP process, increase compliance and accuracy. Ariba is a good example of how procure to pay processes are progressing and how digitalization is creating more and more transparency between buyer and supplier. It is possible for suppliers to upload invoices directly in to a buyers ERP, sending out an invoice is old news with this technique, as soon as an invoice is approved on the buyers side, it is ready to be paid. This process will save time and the era over due payments will slowly but surely fade. SAP might have been a pioneer with Ariba, however many are following and companies such as IBM are introducing companies to the technology and consulting them on it.
It will not be tomorrow, nevertheless, it will not be long before the majority of organizations and companies embrace the technology and all P2P processes will be based on it. So the only question that arises, when? Just like most innovations, it is only a matter of time, and I think we are closer the era of blockchain than we think, for many companies have already implemented blockchain technology in their processes. It is an exciting development for the financial world and this is not the end of it.
IBM explains the four fundamentals.
- Distributed ledger: Unlike many systems that store data via central repositories, blockchain uses distributed database ledger. Therefore, all participating members of a blockchain network share access to identical information on accounts and balances.
- Consensus: A coordination protocol called a “consensus” algorithm maintains the shared ledger across the peer network. As the term suggests, the algorithm reflects the collective agreement of the network transactions. After a consensus is reached, business transactions can be committed onto the ledger — and cannot be changed or denied by any of the participants.
- Smart contracts: These represent the rules of blockchain. They are stored on the validating nodes in the blockchain. Enabling decentralized automation of business processes across boundaries, smart contracts are critical to operating a digital business.
- Permissions: Authorizations help ensure appropriate transparency and transactions that are security-rich, authenticated and verifiable.•*
•* IBM White paper, 2017 : Blockchain, the next disrupter for finance