By now, the chances are that you know what blockchain is and that it is set to have a dramatic input on many areas of our lives. One such area is the world of B2B e-commerce.
At its most basic level, blockchain technology is a distributed ledger that is shared across a P2P networking. This network contains and stores the records of secure transactions which makes them accessible and visible to multiple participants. These records keep track of entire transaction histories and they are able to be individually verified via means of sophisticated cryptography.
By using what is known as a cryptographic signature, the blockchain is immune to fraud which makes blockchain based transfers amongst the most secure and safe of all online transactions. This security is a big selling point and it is beginning to pique the interest of a huge number of financial institutions and authorities who are beginning to explore the possibilities that blockchain and cryptocurrency have.
Back in November 2017, a lifetime ago in terms of crypto, Visa Inc announced that they intended to pilot a blockchain-based B2B payments system called B2B Connect. This system was designed to increase the security, speed, and efficiency of B2B transactions.
But the potential applications of blockchain go far beyond just Bitcoin and financial transactions. For B2B businesses, blockchain is able to handle a myriad of different tasks such as the transfer of financial securities, mobile minutes, energy credits, and even air miles. The technology even has the ability to reduce traditional fictitious elements of making high-value, high-volume orders that involved multiple layers of suppliers, vendors, and distributors. This is also not forgetting the use of smart contracts which can facilitate the reduction of inefficiencies at almost all stages of a deal-making process.
Stats released by the World Economic forum have estimated that blockchain technology could account for around 10% of the global GDP by as soon as 2027- bearing that in mind, why should you invest in blockchain and how can you get it working for you?
Most B2B merchants carry out their transactions via cheque, wire transfer, or automated clearing house systems which are known for being slow, costly and subject to fraud and human error. A survey carried out in 2017 by the AFP showed a huge increase in B2B payment fraud since 2015. In fact, over 75% of companies said they suffered check fraud in 2016 alone, an increase of 4% from the previous year and 74% said they had fallen victim to a business email compromise scam.
The average organisation loses around 5% of its annual revenue to fraud and this amounts to trillions and trillions of dollars lost, every year. But how to protect yourself? This is where crypto and blockchain come in.
A Smart Contract has huge potential when it comes to B2B businesses. These contracts take the form of lines of code that create a digital agreement between two or more parties. These contracts are self-executing and do not require a third party to oversee any stage of the process.
For businesses that take credit card payments, the process can be costly, laborious and involve up to four parties. A simple purchase can involve the merchant, the credit card company, the cardholder’s bank, and the individual cardholder. Having these many people involved results in delays, a slow process and fees that are incurred by at least two out of the four parties. If you can eliminate these, through the use of a direct P2P transaction, then fewer parties are involved and fewer institutions need to be paid.
If your company is involved in cross-border business then you will know that foreign transaction fees can be immeasurable, particularly for large or frequent transactions. DHL Logistics conducted a survey recently where they found that such fees would reach a total of $1.2 trillion in the next five years. A traditional wire transfer costs anywhere between $22 and $50 and that is not including any applicable currency exchange fees. Bitcoin on the other hand and Coinbase charge a flat rate of 1% to convert BTC into a local fiat currency.
Secure Supply Chain
When it comes to conducting businesses across borders, there are lots of opportunities for friction to occur. Relying on the timely communication of information between third, fourth, and even fifth parties can seriously complicate transactions that in turn leads to delays in supplier payments and reconciliations.
According to IBM, using blockchain technology allows for a much faster and auditable B2B interaction between all stakeholders. It is assumed that blockchain technology even has the power to replace paper-based and manual purchase orders as well as other trade documents- with smart contracts. By providing real-time visibility into the supply chain and trading data can result in much smarter decisions regarding inventory, procurement, investments, and even the financial position of the company.
That said, blockchain doesn’t necessarily hold the key to solving all of the B2B transaction world’s problems. There are many obstacles in the way such as the current regulatory environment, lack of legal framework, and even the lack of its synergy with the recently enforced EU GDPR. Whilst there is a lot of investment and consideration needed to overcome these, many believe that it could be the most important technologies to shape the infrastructure of the next generation of financial instruments.
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