Transparent Transactions: How Blockchain Payments Can Make Life Easier For B2B Companies
Last month, MasterCard announced it will be opening up access to its blockchain technology. According to a press release, “MasterCard’s blockchain solution provides a new way for consumers, businesses and banks to transact and is key to the company’s strategy to provide payment solutions that meet every need of financial institutions and their end-customers.”
MasterCard plans to implement the technology initially in the realm of business-to-business (B2B) transactions. The company believes its blockchain technology will help to address challenges involving speed, transparency and costs associated with cross-border payments.
Blockchain is the technology behind cryptocurrencies like Bitcoin and Ethereum. Through blockchain technology companies can create an irrevocable digital ledger of transactions. “The technology can be integrated into business processes today, not even in the near future. And smart contracts can be created for literally any task: from smart homes and property insurance, to payment cards and logistics,” says Alexander Borodich, Founder of Universa, a blockchain technology company that enables its users to create smart contracts.
Additionally, blockchain technology removes the need for a central authority to manage transactions, making these transactions highly secure and impenetrable for hackers.
This technology has yet to be widely adopted, but it has already proven critical for businesses and even more so for the B2B realm since it often involves larger transactions. But that’s only one of the reasons why blockchain technology will be critical for B2B. Here are three more reasons.
Blockchain technology provides a high level of privacy by ensuring that transaction details are shared only amongst the participants involved in those transactions. With blockchain transactions there’s no need for a third party.
But the level of privacy associated with blockchain payments has raised concerns among many in the finance community. However, in addition to the high level of privacy built into blockchain technology, there is also a high level of transparency. Blockchain systems include a fully auditable and valid ledger of transactions. This ledger is indelible and unforgeable. Entries into the ledger can only be made if they are validated by the system. And in order to change it, every single other blockchain in the system would also need to be changed. For this reason it’s impossible to delete a blockchain transaction in an attempt to hide it and fraudulent transactions cannot be added.
This transparency eliminates the need for checks and balances that often take up important resources and manpower. With blockchain, payment transparency is automatic. As a result, some predict financial reporting costs could shrink by 70%. Data is also optimized and simplified, making it easier for companies to comply with regulations and meet demands for data. And some have even argued that due to the transparent nature of the technology, it should not be regulated.
Smart contracts are a component of blockchain technology that is self-executing and stored on blockchains. Due to the decentralized nature of the system, no one controls these contracts and therefore every involved party can trust their validity. The code has the power to control and restrict how the data in the blockchain is accessed and used. Because of the high level of automation in this technology, those companies who have adopted blockchain have experienced huge cost savings.
According to a report by Accenture, a global management consulting and professional services company, and McLagan, a compensation data and consulting firm, blockchain technology can reduce infrastructure costs. The analysis looked at the banking industry and found that “blockchain technology could reduce infrastructure costs for eight of the world’s 10 largest investment banks by an average of 30%, translating to $8B to $12B in annual cost savings for those banks.”
In the B2B world, blockchain can also reduce the amount of fees that companies pay to financial institutions. In many B2B financial transactions there are fees at both ends for the parties involved, and sometimes there are fees at other stages of the transaction process. But with blockchain there is no third party through which transactions must travel, resulting in fewer fees.
The amount of automation in blockchain technology not only has implications for the bottom line of B2B companies, it also means these companies will be able to conduct their transactions faster. This is also true for business transactions conducted internally. Due to automation, employees would no longer have to wait to be paid the traditional two weeks after they have completed their work. Instead, they could be paid at the conclusions of every workweek, or even every day.
And blockchain technology can also speed up cross-border transactions. Without blockchain technology, international transactions can take anywhere from days to weeks. But blockchain transactions can be done in a matter of seconds. Instead of having to pass through multiple parties, blockchain transactions only need to be confirmed through the blockchain system.
Experts predict blockchain technology will only get faster as its scale increases. As more companies embrace this technology, B2B transactions at every level will run more smoothly. Essentially, the more widely blockchain is adopted, the better it will become.