Reimagining the future of finance with blockchain

CFOs need to understand blockchain so that they can embrace it, says Henner Schliebs

We’ve been reading about the promise of bitcoin for several years now. When it entered the market in 2009 it was looked at as the next economic disruptor, but experts and financial regulators continue to struggle with what digital currency will ultimately mean to the global financial system. The consensus to date – cryptocurrency itself may not transform the financial sector, but its underlying technology, blockchain, holds revolutionary potential.

Blockchain is a type of “database” that records digital events between different parties. It acts as sequential spreadsheet of transactions, updating on a global network of computers, which serves as a distributed ledger. The ledger is encrypted as it’s being written so the transactions it contains can be safely verified by legions of other computers across the network. It is essentially a trusted network that can be public, private or a hybrid.

As a technology made famous by digitally transforming how we view money, it’s not surprising that the financial services industry is one of the earliest adopters of blockchain. Banks, brokerages, and others are actively leveraging the technology to transfer money and keep pace with regulatory processes to provide a faster service to their customers at reduced cost. With trusted public registries, transactions transfer smoothly and immediately with full traceability. The outcomes of this advantage are significant, and as businesses strive to become more intelligent enterprises, financial directors are looking to the technology to eliminate redundancies in cost reconciliation and close the books faster.

Blockchain provides finance teams the opportunity to tap into the full potential of their digital investments

Traditionally, transactions are regulated by a central governing financial institution, but with blockchain, third parties are no longer needed to guarantee a transaction. The technology coordinates agreements among all parties through a transparent, shared architecture. Transactions can be posted in minutes and financial directors have access to all of the data throughout. Blockchain also eases the timely reporting process, recording transactions and eliminating redundancies in record-keeping. This increases operational efficiency through improved speed, access and legitimacy of transactions.

To further streamline transactions, blockchain can enable “smart contracts” to simplify the reconciliation process. With smart contracts, financial directors can ensure transactions are carried out correctly and resourcefully in accordance with specified provisions, particularly those involving multiple systems or departments. Digital protocols facilitate negotiations, verify the agreement and enforce compliance with terms.

Beyond its ability to streamline, blockchain also allows financial leaders to make strategic business decisions through a real-time view of all transactions. By integrating blockchain into advanced technology systems such as automation tools and existing ERP systems, finance teams can manage each transaction under a single umbrella. This connectivity ensures that finance teams are monitoring in a way that keeps up with the intelligent enterprise and provides the opportunity to analyse the forces behind market trends to stay ahead of the curve. Right when a transaction is posted it can be seen automatically and users do not have to wait until it is transferred to their system. This enables finance teams to access a vast variety of advanced analytical capabilities, ultimately creating a real-time team. Particularly in the treasury function this helps tremendously to optimise working capital with full insights and foresights into a company’s value chain.

With a framework that allows the creation of a trusted, public registry to securely log information in terms of a triple entry accounting methodology, blockchain provides finance teams the opportunity to tap into the full potential of their digital investments. As the corporate finance function continues to evolve, it is crucial that finance teams gain a strong grasp and understanding of the concept behind blockchain so that they are prepared to embrace it, when the time is right.

Henner Schliebs is global vice president, S/4HANA, S/4HANA Cloud and Finance Audience Marketing at SAP