Managing financial data can be a huge challenge for organizations in almost any industry. Legacy systems, physical paperwork, and manual processes are some of the main culprits that contribute to lack of transparency, efficiency, and organization of large amounts of financial data. The good news is that emerging technologies, namely the Blockchain, are stepping forward to remedy these issues for large companies and businesses.
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Enterprise-scale businesses of all shapes and sizes are beginning to recognize much broader financial applications of the decentralized, transparent public network and ledger that blockchain provides. Take JP Morgan, for instance, who recently announced their partnership with Zcash to improve the security of their customer’s financial data.Global fintech payments provider FLEERCOR is also using the Ripple blockchain to provide better data security and organization.
JP Morgan and FLEETCOR are just two examples of why blockchain is promising to be the future for managing (and improving) financial data for companies across the board. Gary Markham, CEO of aXpire, a blockchain based spend management solution, explains why companies are turning to blockchain providers, “There is an increasing demand for real-time data. A recent study from MIT Sloan suggests that on average, companies lose 15-25% of revenue due to issues related to data quality. We are looking to tackle these issues, and the entire data ecosystem with it.”
1. Public vs. Private
One of the most important distinctions that have to be made when examining how the blockchain is used to improve financial data is public blockchains versus private enterprise blockchains. A public blockchain is characterized by many anonymous users, who all have open read and write privileges, where proof of work and transactions is reached by consensus.
In contrast, private enterprise blockchains are managed internally by a single company or organization. Participants are typically only the relevant individuals, departments, or business units. The benefit is more internal transparency on data management. Markham explains, “In data management, and spend management specifically; data silos have been a significant issue. The synergies of combining different data sources and presenting it to the end user in a way that allows for proactive decision making will ultimately result in customer success.” When it comes to managing financial data, most companies will choose a private blockchain for security and internal efficiency reasons.
2. Spend Management
One of the biggest areas in financial data management that businesses utilize the blockchain to tackle is Spend Management. Typically, the spend management process is often bogged down (especially in financial services) because appointments and other issues simply aren’t capable of being addressed by existing, legacy software. Markham detailed how his company tackled this issue, “We developed a cloud-based spend management solution that handles invoice approval and allocation using machine learning, a form of Artificial Intelligence (AI). Businesses are able to receive invoices through the billing platform and then assign them around the mid and back-office electronically prior to approval.”
The spend management process in many organizations also tends to be burdened with paper processes, making it difficult to track and organize financial data. That’s why many companies are turning to the blockchain for spend management processes like procurement, for example, to digitize their workflows and make financial data more accessible and transparent to the key internal stakeholders.
3. Error Reduction
Because transactions conducted on the blockchain must be verified by both parties and is open to public inspection to the right parties even on a private blockchain, the chances of manual human error are greatly reduced. Especially when it comes to financial companies and data, small errors can cost a fortune to fix, and even those that don’t can add up over time to a rather significant sum of money. With the blockchain, these costly alterations and mistakes are prevented via several means. Primarily, all financial data workflows can be pre-configured for approvals, so that the right parties verify the most critical information before transactions are finalized. The distributed, internal ledger also means that more parties have visibility to key financial data so that more people can audit and verify its accuracy.
4. Activity Ledgers
Finally, the blockchain can help organizations create better ledgers and records of their activities. The ledger aspect of the blockchain is one that speaks directly to the financial reporting community because any and all financial transactions are recorded, validated, and stored for auditing purposes. Each transaction, whether it be a vendor payment, the sale of merchandise, or fulfillment of invoice is stored on the blockchain with a unique token, which is easily trackable, traceable, and verifiable.
This makes the jobs of CEOs, CFOs, and CTOs immensely easier, as transactions and activities across departments are easily visible. In the end, individuals across the C-suite can then better align their strategies to meet business objectives, reduce costs, and improve overall financial efficiency.
While some companies are still hesitant on adopting blockchain technology, the competitive landscape with soon make it a necessity. Markham argues, “While these changes won’t always immediately impact the front-end of enterprise applications, the back end benefits of a secure, immutable network will be tangible…and as we saw with cloud technology, those that are late to adopt rarely catch up.”
In the end, companies that adopt blockchain solutions will be able own, control, and view their own data privately and securely, in a more effective way. The result will be a reduction in losses associated with bad data, and increased competitive advantage stemming from more reliable data insights.