Finance And Risk Functions Poised To Unlock Blockchain’s Potential

By Steve Culp for Forbes

While financial institutions discuss and evaluate the potential benefits of blockchain, finance and risk executives are perfectly positioned to capitalize on its potential today.

When does hype become reality? It’s an interesting question that often comes with an ambiguous, imprecise answer – particularly when we’re talking about the world’s most well-known distributed ledger technology platform: blockchain.

Financial institutions have been increasingly swept up in a fast-moving dialogue over its promise and potential application. But what would a blockchain-centric financial system look like in the future?

While blockchain has extraordinary potential to positively disrupt the financial ecosystem, its application – outside a limited number of test cases — is largely theoretical. To reach a point of widespread adoption, broad, systemic usage across a wide range of financial market participants is needed. Regulatory mandates could also be key drivers of adoption, though this could be three to five – or more – years off.

Blockchain’s potential, however, doesn’t need industry cooperation for value to be realized now.

The platform is useful for coordinating the activities and entries of multiple actors on different systems. Specifically, this cross-institution connectivity helps harmonize multi-step workflows, preserves audit trails and quickly resolves issues relating to the ownership of data.

The potential for tangible and valuable application lies at the heart of the finance and risk functions.  Core finance and risk functions that revolve around reconciliation, record consolidation and audit trails are well-aligned to blockchain capabilities at a conceptual level.  And the industry dialogue is shifting. Today, we are actively discussing with our clients where and how blockchain can be applied as a solution to overcome challenges around many areas, including referential data, know-your-client activities and procure to pay.

Referential data is difficult to keep up-to-date, so blockchain’s ability to provide a “single source of truth” is integral in improving the quality, reach and usability of the data. Know-your-client, and more broadly, compliance, is another area where auditability, transparency and security can shine the most light. By connecting the dots of customer data over a period of time, it will allow firms to manage risk and ensure compliance in a more comprehensive manner.

Procure to pay is another area where blockchain can make a big impact. Transparency along the entire workflow with the procurement function, suppliers and back office will help companies track status in near real-time and make further gains in efficiency.

For these three core areas in particular, blockchain can make an immediate impact today. Where finance and risk functions are unshackled by large legacy investments, and where there is a conceptual fit between needs and solutions, we will see the emergence of “blockchain test case” solutions accelerate and become more prevalent.

To increase the chances for success, finance and risk executives need to be a core part of the conversation now. Going forward, removing cost and complexity from operations will continue to be a critical focus for institutions, and blockchain provides a clear path toward this objective.

If it’s done right.

First appeared at Forbes