What Is Blockchain
What Is Blockchain
Private Blockchain:
Write permissions are restricted to one organisation. Major applications include database
management, auditing i.e. areas specific to a single entity where there is no requirement to provide
the right to read or validate to public.
The development and operation Smart contracts are one of the most important features of the Blockchain
support for a Blockchain is technology. They are essentially computer codes stored in a Blockchain to process
concentrated in the infrastructure pre-defined business steps and execute a commercial/ legally enforceable
layer of the technology stack. A transaction without involvement of an intermediary. Smart contracts can be
fundamental difference between executed in a cost efficient and secure manner, and in real time. Smart contracts
legacy processes and Blockchain have a far reaching cross-industry applications because they can automate
technology is in the way data is decision making especially when the outcome of a decision is based on the
stored and processed. Blockchain consensus reached between participating members.
has features of encryption and
verification inherent to its design,
with consensus on the network
being a required condition for a
transaction to be captured in a
block.
What are banks looking for? Banks are continuously exploring new ways to perform transactions quicker for an
enhanced customer service, while ensuring cost efficiency in its operations and assuring transparency to
customers and regulators. For this, Blockchain potentially provides a solution for banks as it inherently helps
eliminate intermediaries, maintain immutable log of transactions and also facilitates real-time execution of
transactions. This could potentially reduce the TAT for banking transaction, reducing costs of manual work, and
leading to enhanced customer service and satisfaction. Like any other industry, choosing the right ‘use case' is the
key for Banks to leverage full value of Blockchain.
Framework:
Factor Assessment Framework Impact of Blockchain Fit
Intermediary • High fees for intermediary? • Latency Blockchain's distributed ledger
due to processing through intermediary? technology facilitates disintermediation,
• Does the intermediary exist due to lack thereby reducing costs and lowering
of trust? latency.
Transparency • Are multiple participants involved? • The hash/ pointers of the records written
Does increase in transparency into the on the Blockchain are immutable and
transaction help the participants irreversible, not allowing modifications
and eliminating risk of fraud.
Information Storage • Is the same information being stored in Blockchain's distributed ledger and
multiple locations? • Is data consistency consensus mechanism allows data
an issue? consistency across multiple participants.
Manual Processing • Does the process involve manual Blockchain maintains automated audit
operations? • Is the cost of trail of transactions, thereby reducing
Reconciliation high? manual processing for data validations
and reconciliations.
Trust • Is there trust among participants? • Do Smart contracts allow codification of
multiple participants have the right to business rules, validations and
modify transactions? • Is there a risk of reconciliation, thereby reducing manual
fraudulent transactions? processing.
Time Sensitivity • Will the transactions benefit from Blockchain enables the near real-time
being real-time or synchronous? settlement of recorded transactions,
reducing risk and providing an enhanced
customer experience.
Manual documentation is required Time-consuming process due to manual processing of the transaction
throughout the lifecycle of a Vendor finance and lack of automation at any point, it takes minimum 4-5 days for
process right from raising purchase orders to vendor to collect funds from the bank against the relevant document.
raising bill of exchange by vendors and This affects the working capital situation of vendors as the funds remain
submission of invoices and transport blocked as long as the processing takes place.
documents to banks. This increases overheads
for banks and also makes the process tedious Potential of fraud as invoice changes multiple hands throughout the
for vendors. lifecycle of a transaction, there are high possibilities for frauds in form of
tampering of documents thereby causing delay in release of funds, funds
Lack of mechanism to track status of invoice being disbursed to wrong entity. Also, once such transaction happens, it
throughout the process Currently, all the is difficult to keep a track of such fraudulent entities/ practices.
participants (banks, client and vendors) cannot
simultaneously track transaction in real-time.
The status of invoice is known to the
participants only through mails.
Cost Blockchain offers tremendous savings in Integration procedure and change adoption Blockchain applications offer
transaction costs and time but the initial cost solutions that require significant overhaul of existing systems. In order to
of investment in the technology might be high make the switch, companies must strategize the transition. It needs to be
and the payback period might be high. Hence, a consortium-based approach as banks need to make sure that all the
Banks will have to consider it from a long-term relevant stakeholders for the underlying use-case agree to come
investment perspective and make sure that the together on the platform. This will require conducting workshops with
investment is aligned to their vision statement. the stakeholders and educating them about usage and usefulness of
Blockchain based system.