NEW YORK – Commercial finance, the complex capital management necessary for the international flow of commerce, has made huge strides in the development of blockchain networks designed to ultimately replace more traditional methods.
It's a mature area for innovation and transformation, and it's obvious why.
There are various types of commercial financing with different requirements. But in the simplest way, if a bank wants to finance trade for a client, it needs access to the underlying business data. This typically involves receiving invoices and other data via e-mail or spending valuable time trying to integrate with client systems.
Both methods are potentially unsafe, long and subject to human error. These costs and risks are multiplied if the data are to be shared with other banks and third parties.
Too often, valuable commercial data is trapped in different silos applications, making collaboration difficult and even harder to verify.
At present, a customer relies on its ERP (Enterprise Resource Planning) system, an information management system that usually includes planning, purchasing, inventory, sales, marketing, finance and human resources.
Here's the problem: the success of financial solutions for trade and working capital depends on access to accurate and timely data on underlying commercial transactions. But the client's ERP is currently disconnected from the technological systems of financial institutions on which corporate entities depend for funding.
This means, among other things, that there are large pools of disconnected businesses that can not be financed by financial institutions.
On the other hand, both business and financial institutions use manual, slow and costly processes to perform key functions in the configuration and management of commercial and working capital solutions.
Therefore, the main challenge facing commercial finance is to make ERP systems and banking services interoperable so that data is more reliable and a customer can quickly provide information to the bank, make faster decisions and get better results.
Blockchain in commercial finance
Blockchain aims to achieve what the back-office systems can not: enable participants to share data and documents with each other securely and in real time, creating a legitimate and reliable digital record in the process.
It connects a bank through an application programming interface to its client's ERP system, giving banking access to the necessary client invoices and other business data.
This information can be further improved by connecting to logistic service providers, verifying invoice data and associating them with shipment tracking information.
In this way, blockchain creates a new workflow, business logic and rules engine, allowing a bank to automatically check financing and credit risk rules and process transactions.
Blockchain allows its banking users to share data securely with other financial institutions, resulting in improved financing and credit insurance options for their customers.
In other words, real-time visibility on what blockchain fans consider their Holy Grail: a unique source of critical business data.
Are you involved in a blockchain project? Get in touch with Andrea Hotter at [email protected].
Andrea Hotter
