Why blockchain is the future of B2B payments
Anyone involved in operating a business will only be too aware of the issues caused by the traditional banking system. When it comes to paying bills or settling invoices with international suppliers, this takes far too long and incurs fee after fee. Businesses, both big and small, are starting to realise the benefits of blockchain and how it can be used to bypass these issues.
As an investment opportunity, platforms offering B2B payments via blockchain have much to offer. The reality is that this technology is only just beginning to unleash its full potential. There will always be a need for businesses to interact financially with each other and there will always be a desire to save on fees and time.
Perhaps you’re not convinced? If that’s the case, there are some great statistics to be found here. An overview of these includes the fact that:
- By 2024 businesses will be spending $20 billion a year on blockchain projects
- 74% of business executives can see the huge potential that blockchain holds
- Financial institutions have spent around $552 million on blockchain-powered projects
As you can see, there is plenty of money being pumped into blockchain right now. Let’s take a look at exactly why that’s the case.
What is blockchain?
Before you start to explore just how blockchain is revolutionising the B2B payment process, it is worth revisiting what this technology actually is. For those seeking investment opportunities, knowledge of the underlying technology is certainly beneficial.
You’ll probably have come across the term ‘blockchain’ when looking at cryptocurrencies, such as Bitcoin. In this area, blockchain is utilised to maintain secure, and decentralised, records of every transaction that takes place. So, in essence, blockchain can be seen as a type of database.
Blockchain, as a distributed database, is shared across nodes of a computer network. It stores information electronically, in a digital format. The difference between a blockchain and a traditional database is that a blockchain allows the fidelity and security of records to be guaranteed. This allows for the removal of any trusted third parties, who only serve to slow processes down.
All of the information that is held is stored in blocks. These blocks become filled and are then unchangeable. There is an exact timestamp given whenever anything is added to the chain and this creates an irreversible timeline.
The mechanics of blockchain and B2B payments
The foundation of blockchain is distributed ledger technology (DLT). Whereas traditional payments are verified by a single party, or bank, when it comes to blockchain, records are instead verified by a network of computers. As soon as a transaction is verified and recorded it becomes set in stone as part of the blockchain. There is no way to alter the record or to tamper with it in any way.
When a business is looking to make a payment to a supplier, they simply submit the information to the chain. This leads to the creation of a digital block which is then distributed across the network. As the block is distributed, numerous computers then begin the task of unscrambling the block. The first computer that manages to do this then shares it with the network.
The network will then get to work verifying the transaction. This includes confirming that the funds are available and that the request that has been made is legitimate. As soon as the verification process has been completed, the transaction is authorised. This leads to it being posted to the ledger and the parties involved are immediately updated.
What are the benefits offered by blockchain for B2B payments?
It’s all well and good having an overview of how blockchain works, but to see the true value there needs to be an understanding of the benefits that it offers. It is the benefits that make this such an outstanding opportunity: it just makes sense that businesses and corporations will want to take advantage of what this technology has to offer.
Here’s a look at some of the key benefits available:
Any business that sends payments overseas will be familiar with the frustrations faced with traditional banks. Cross border transactions typically take around 5 working days to settle and this is not in the interests of either party. As blockchain does away with the need to use central banks, the whole process is significantly faster. The way in which the network operates means that it is available 24/7 and has the ability to support real-time transactions.
A further frustration faced by those using traditional banking for cross border B2B payments can be found in the manual processes involved. There is a need for each party to phone or email each other to ensure that records, spread across numerous systems, are kept up to date. What blockchain offers instead is automation and transparency. This all adds to the time savings that blockchain can bring to a business.
Payments that are frictionless
Blockchain presents an opportunity to completely eradicate traditional invoicing and payment processes. One emerging use of blockchain is the ability to place a one-touch order with suppliers. This order can be placed directly from equipment within an operating room or a manufacturing plant. As blockchain has ‘smart contract’ properties, it will allow for automated transactions that take place between devices as soon as certain conditions are met.
Smart contracts hold the potential to become the norm when it comes to replenishment, as well as any microtransactions that take place between buyers and sellers in a B2B environment. Through integration with payment networks, payment terms and pricing can be set within the smart contract. When this happens both buyer and seller receive real-time notifications and see their systems updated.
The ultimate in fraud protection
While fraudulent activities can’t be 100% eliminated, when it comes to financial transactions, blockchain offers the opportunity to easily trace where such activities have taken place. The distributed ledger is public and acts as, what can best be referred to as, a source of truth for suppliers and buyers.
The process of verifying transactions, completing blocks, and adding them to the chain, means that these transactions become tamper-proof. Both buyers and sellers can have confidence that funds are available the very moment that they receive their real-time update.
Addressing the issue of false positives
Accounts receivable, and accounts payable, departments walk a fine line when it comes to fraud prevention. They, of course, need to impose strict preventative measures. The issue is that the tighter these measures are, the higher the likelihood of false positives.
This increase in false positives is bad news all around. It leads to cards being declined, even for good accounts as well as causing significant delays in the invoicing process. The ultimate result is that the buyer-supplier relationship suffers. Utilising blockchain provides the best solution when it comes to preventing false positives. The network-based verification process, along with the immutable records, leads to more good transactions being recognised. The end result is increased trust between the parties involved.
How banking on blockchain is already happening
While looking at blockchain as an investment opportunity, it is important to realise that this is something that is happening now. It is not some far-flung ideal that may become a reality in future. It is a reality right now.
Here’s a look at how blockchain is being used in practice right now:
The use of Stablecoins
Some businesses that have explored the use of blockchain, and the association of cryptocurrency, have often faced fears. They have had concerns with the volatility of digital currencies. Some of these fears have been real, while others are merely perceived. The use of Stablecoins has addressed these concerns.
A Stablecoin is pegged against a receiver asset that is seen as stable (hence the name). An example could be the US Dollar. This means the coins will follow the path set by the US Dollar and will be immune to any wild swings that other digital currencies may experience.
The race between big names
Those involved in processing traditional payment types, such as Visa, MasterCard, and Amex are already in a race against each other. Each is determined to be the first to develop new blockchain payment technologies and to be seen as the leader in the field.
The presence of household names in the sector demonstrates the viability of blockchain. With these companies pumping significant investment into this area, you can be sure that it is set to see continued growth.
Fintech companies, and even traditional banks, have fully embraced all that blockchain has to offer. Now it is time to ensure that every business, regardless of its size, stands to benefit from what this technology has to offer.
There is a real opportunity right now. The opportunity to be part of something that is set to bring about a revolution when it comes to B2B payments, all while offering the chance to earn some impressive returns from a sector that only continues to grow.