Over recent years blockchain technology has been highly disruptive in the world of finance, with internet searches rising year on year. And it doesn't stop there, the development of blockchain isn’t slowing down, with many industry leaders declaring it has the potential to change how organisations do business.
To become forward thinking CFOs, industry leaders will need to become experts in this new phenomenon and begin to grasp the benefits and potential risks it could bring to organisations.
So, what exactly is blockchain- the exciting technology that has the potential to change the future of banking? In its simplest form blockchain allows “consumers and suppliers to connect directly, removing a need for a third party.” The transaction can go through without any interference and is digitally recorded. This is a highly effective way to keep data untainted because it cannot be altered by any other party and is only carried out through the digital network (following network rules), not a specific institution.
To become blockchain experts, what will CFOs need to know?
The idea of blockchain may seem exciting and innovative but to ensure success CFOs must first understand the pros and cons. As a recent article published by Deloitte stated, there are numerous opportunities and challenges that finance teams need to be aware of.
1. Eliminate any third party exchange
There is no need for interaction with any third party, meaning that there are less risks involved because no information is stored in an external database. Another benefit of eliminating third party interaction is that costs can be greatly reduced because there is no overhead charge for transactions.
2. Quality of Data
Data quality is a high priority for financial institutions and a large amount of time is often invested in removing inaccurate data. Once again, blockchain transactions involve no third party, it ensures that any changes can only be validated by the primary source. This guarantees the data is accurate and the primary user has full control and visibility of all data, information and transactions.
3. High speed transactions
Blockchain technology is great for businesses because transactions can be carried out almost instantly, making it a more efficient way to bank. With the standard technology it can take several days for payments to clear and usually only in working hours. With blockchain technology this delay is eliminated because transactions are processed 24 hours a day.
4. High visibility
Transactions are publicly viewable by all blockchain users and therefore cannot be changed or removed.
The subject of integration is one that places concerns around risk for finance teams, as the implementation of blockchain technology requires vast alterations to existing systems. Although blockchain can lower transaction costs, the cost of integration and high initial capital costs can be vast. This is a process that must be methodical and conducted with a detailed strategy and risk assessment.
2. Regulatory Clarity
A lack of clarity over regulation is holding back the development of blockchain technology as institutes need to have an extensive understanding of the risks, so that regulation can be put in place. Regulatory support from the government is paramount as currencies are regulated by governments. So, until the adoption of blockchain is widely accepted and understood by national governments, it’s regulation will remain unsettled.
3. Growing Technology
With many businesses continuously adopting new technologies to enhance their services it is inevitable that technology will continue to grow. Therefore, the challenges around transaction speed and the verification process will need to be resolved before blockchain is widely accessible.
These are only a few factors that should be thought-out before blockchain can be accepted by all financial institutions, but in the meantime, it is fundamental that CFOs have a comprehensive understanding of the pros and cons of blockchain. Additionally, like with any new implementation these pros and cons will set the foundations for how blockchain will be implemented into different organisations for them to make the cultural shift.
What are your thoughts on blockchain? How have you seen this technology impact businesses? We would be keen to hear your thoughts, so please leave a comment or get in touch directly at: firstname.lastname@example.org