How blockchain is revolutionising B2B payments
While the majority have no doubt heard about Bitcoin, perhaps not everyone is aware of the platform that allows this cryptocurrency to operate: blockchain. Developed to allow the use of a decentralised currency, blockchain technology has continued to develop and now has a whole host of benefits that are available to an array of sectors.
What is particularly exciting right now, is how the technology is being utilised to make B2B payments. With businesses small and large set to benefit, now is the time to get involved with blockchain as its demand is only set to go one way: up.
In this article, we’re going to explore what a blockchain actually is and show you the impact that is already taking place when it comes to B2B payments. Will also be looking at what’s to come in the future. Read on and learn why now is the best time to invest in this technology.
What are B2B payments and why is change needed?
Let’s start by getting some basic definitions out of the way. B2B (business to business) payments are those that take place between two businesses. It sees currency being traded in return for goods or services. It could be a retail outlet paying a supplier for stock or an industrial unit making a payment to a contractor for cleaning services. B2B payments differ from B2C in several ways:
- In B2B the price can vary depending upon the contracts that are negotiated
- Business relationships matter and payment history can help to build these and increase trust
- There are often numerous people involved in the buying decision
- Purchases are often for large quantities that can expose a business to risk
- Transactions can take hours, or even days, to settle especially cross-border
Those involved in B2B benefit from simplifying the process and by exploring ways that can improve the experience for both sides involved. For many, the solution is being found in paperless transactions and these transactions are taking place via a blockchain.
What is blockchain and how does it work?
As a distributed digital ledger, a blockchain is capable of strong any kind of data. It is often used to record information that relates to cryptocurrency as well as the ownership of non-fungible tokens (NFTs). In reality, a traditional spreadsheet could be used for storing such information, but blockchain is unique.
What makes blockchain special is that it is decentralised. Rather than being hosted/owned by a centralised administrator, a blockchain is held on numerous computers (known as nodes) that are spread out and form a network.
The digital ledger is made up of individual blocks. These individual blocks contain unique information. When the information on each block is validated and verified, it gets added to the existing blocks in the chain. Once added to the chain, the block is there permanently and can not be altered or tampered with.
All sounds good, but how does any of this help with B2B payments? Let’s take a look.
How blockchain brings benefits to B2B payments
We have briefly considered some of the issues faced when it comes to B2B payments. We’re going to take a more detailed look at some of the most common and then consider how blockchain can assist. The important thing to note here is that none of this is just theory. These are things that are happening right now and there are already companies that are reaping the rewards.
Often, when people look at investing in new technology, they want the knowledge that what is being invested in actually works and brings tangible results. That is certainly the case with blockchain as you can see by looking at these benefits:
Costly errors are eliminated
With blocks of identical information being stored across an entire network, there is no way that blockchain can be:
- Under the control of a single entity, or
- Have a single point of failure
With blockchain, the validity of each transaction is ensured. When the validity has been confirmed, it is recorded not just on a main register but in a connected distributed system of registers. So, how does this help when it comes to B2B payments?
What this all means for B2B payments is that previous errors can simply no longer exist. There can be no missed transactions. The chances of human, or even machine, error are eradicated. There is no possibility of any kind of exchange taking place without the consent of the parties involved.
Transactions are transparent
One of the great features of blockchain is that it automatically checks itself. This means that it acts almost like a self-auditing system. Every transaction that takes place is reconciled and only when this has happened can the information (the block) be added to the chain. Two points of note are:
- The data is fully transparent and is made public
- Once the data is part of the chain it can’t be manipulated or corrupted
Ultimately, what this leads to, is B2B transactions taking place that are extremely safe and secure. The way in which data is stored, all sorties involved can have the confidence that it can’t be toyed with in any way that could potentially cause damage. The data, rather than belonging to an individual, becomes the property of the two businesses involved in the transaction. The records are permanent and, because blocks are added in chronological order, they are easy to audit.
Since the arrival of the Ethereum blockchain, in 2015, blockchain has been able to support smart contracts. These contracts have rules embedded in them and are set up so that, when all conditions have been met, they automatically execute. There is the ability to customise a smart contract whenever you need to. They lead to processes being streamlined as they cut out the need for any third parties/intermediaries. This leads to increased levels of security with the chances of internal hacking brought down to a minimum.
Any terms laid out in the contracts are binding and they can even include conditions such as insisting that partners document particular information and payments being released only when certain milestones have been reached.
Payments that are faster and more secure
Blockchain technology allows B2B payments that are faster and offer additional layers of security. Not only this, but the transactions are also cheaper. Why? Because by using blockchain, as opposed to the traditional method (Swift), there are no third parties involved. As the image below shows, every time a third party is introduced another fee is incurred. With blockchain, there is just one fee and this is often as low as $0.01.
As well as incurring further fees, the traditional Swift process also takes significantly longer. Why? Well, it is a centralised process that has to pass through numerous intermediaries before it can be completed. This can see cross-border payments taking 5 days or more to settle. In business, where cash flow is everything, these delays can cause serious issues and, in reality, are completely unnecessary.
Blockchain transactions are almost instantaneous. This is achieved by removing all third parties and creating transactions that are peer to peer. Rather than passing through numerous third parties, a blockchain transaction only has to be confirmed by one place: the blockchain system.
Of course, B2B transactions that are faster, and cheaper, bring a whole host of benefits. However, the use of blockchain doesn’t have to end with paying bills and suppliers. There is no reason why this technology can’t also be used to pay employees.
Supply chain management that is highly secure
As there is the ability to easily track the movement of goods, blockchain provides a supply chain system that is immune to the risks of fraud. How? Well, each and every time a product is moved and changes hands, it is documented. This leads to a permanent record being created that shows a product moving from manufacturer all the way until the point of sale. This provides transparency, in terms of where products have been sourced from, and also reduces costs and delays. The potential for human error is all but removed.
As well as assisting B2B relationships, this traceability also assists when it comes to building trust with end consumers. You can prove that an item is a genuine in terms of its branding, you can prove that it has been sourced sustainably, and you can prove that it has been sourced ethically.
Is blockchain the perfect solution for B2B payments?
The short answer is a simple ‘Yes’. The potential shown by blockchain is nothing short of huge. It offers reliability and scalability in ways that have never been seen before. The ability to track absolutely everything and to make payments that are faster and cheaper can only be seen as a good thing.
Blockchain is something that is worthy of more than just a little excitement. As the use of this technology is ever gaining momentum, the time will soon come when its use for B2B payments becomes the norm.