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Blockchain Business Scenarios: Bank to Corporation

In the bank-to-corporation scenario, transaction services running on the blockchain consensus distributed ledger will enable corporate users to benefit from the foundational characteristics of blockchain: speed, accessibility, and transparency—all values that inspire corporate executives’ decisions.

Banks foresee benefits for corporations by virtue of the applications running on the blockchain that will ripple down to the banks’ corporate clients. Consequently, before launching any blockchain-related program, a bank must be very clear and extremely convincing about what is in it for its corporate clients. Corporate involvement is necessary, so more time must be dedicated to understanding what the technology can bring to corporations vs. developing only-for-banks technology and solutions.

So, if banks want to use blockchain as a solution to resolve their internal need for more transactional efficiency, they can do so. But they must also be prepared to explain to the external parties involved what extra effort is needed and the connected benefits, so that these parties can build a cost-benefit analysis and decide whether they want to participate. A sign that this collaborative approach is still rather far from reality and that the race to blockchain appears to still be a very bank-centric matter is the constitution of the R3 CEV distributed ledger initiative, whose members are only banks and fintech companies. The R3 CEV website reads that “the R3 CEV team is made up of financial industry veterans, technologists, and new tech entrepreneurs.” No sign of corporate representative groups whatsoever.

In essence, any operation that involves the exchange of data between parties connected to banks has the inevitable consequence of involving those parties in the entire process, even if they just have to kick off the transaction and let all the rest be processed within the bank domain.

Banks’ tendency to design innovative technologies and overlook corporate needs and reactions has a very recent testimonial with the bank payment obligation. This is a (supposedly bank-only) payment obligation agreement that binds participating banks to making payments upon the verification of certain pre-established conditions. The BPO is, however, practically still at the starting grid because banks are waiting for corporations to demand BPO-related services, while corporations are almost totally unaware of what the BPO is and not sure why they should demand it. Not that the benefits to corporations are insignificant. The problem is that banks have dedicated time and effort to find the interbank and intrabank rules of engagement and process execution guidelines that they have “forgotten” to tell their corporate clients about the BPO’s positive consequences and what is expected from them.

The entire blockchain-based innovative solution set is running the same risk: It is not sufficient for banks to say that blockchain is the underlying infrastructure that runs bitcoins, and that while bitcoins are “bad” the infrastructure is “good.” Neither is it sufficient to drive the attention away from cryptocurrencies to the benefits of cross-border payments with blockchain-based protocols like Ripple. These solutions are always illustrated as if only banks were involved, with other entities (e.g., companies) completely ignorant of why those transactions have been launched in first place and only expected to be happy to save money because some “magic” from their bank has cut transaction costs.

On the contrary, companies are very wary of the implications of changing the way they interact one with another (and whether payments or FX transactions makes no difference), and they stay focused on what those changes imply in their daily operations and workflows.

I very recently interviewed 95 corporate executives, 66 of whom are supply chain (i.e., operations) and treasury managers, with the remaining responses coming from IT, legal, and sales. When asked if they were familiar at all with the term “blockchain,” more than 80% answered “no.” Among supply chain representatives, more than 90% were totally unfamiliar with the term. Among treasurers, the percentage dropped to 61%—not much more encouraging.

Supply chain management and treasury practitioners are good proxies to understanding a company’s technology needs. If they are not aware of blockchain, chances are that neither are their companies. Which means that banks (and fintech firms) will have a hard time promoting blockchain (and turning it into a business opportunity) unless they first generate awareness and a solid business case for corporate clients.

This is the second post in a series of four on blockchain's business scenarios. For the post on the bank-to-bank scenario, click here.