Treasury and blockchain technology: A natural progression?

May 6, 2018

With the rise of Bitcoin and other cryptocurrencies, Blockchain technology has hit the mainstream. I wanted to learn more about what effect it could have on the world of corporate treasury, so I spoke with an industry expert who’s been closely following these changing technologies over the past few years.

Charles Barling is a senior Treasurer with almost 30 years’ experience within the profession. Having worked for several of the UK’s most well-known businesses including Thames Water, Tesco and Burberry on both a permanent and interim basis, Charles has experienced several changes within the industry over the decades. In our interview Charles gives his opinion on cryptocurrency and blockchain, and how (or if) this will affect the treasury industry.

Charles, since you started your career what inovation has had the most the significant impact on the industry, and do you see blockchain as the next big disruptive technology?

Ledgers and databases have always been relevant in the world of corporate Treasury. While the creation of the spreadsheet may have been most important for the accountant, the corporate treasurer will have been among the first to have seen the opportunities, benefits and importance of database technologies. From recognition and recording of financial transactions right through to risk management and analysis, the database really is the foundation on which the treasurer’s world rests.

Blockchain looks to have been coined as the term to cover a family of developments in the financial technology sector, something that covers a broad range of computer programming innovations based around the use of cryptography to support decentralisation, immutability and provide a foundation of trade-based interaction with counterparties that you may not necessarily know or trust. Ongoing promotion by vocal advocates of Bitcoin and other cryptocurrencies alike, that such technologies will be key disruptors to the influences of governments or centralised authorities has stirred a fair amount of additional interest from innovators and regulators alike. Therefore, it is perhaps important for the treasurers to understand the basics so, in their role as risk specialists, they are able to differentiate between possibilities and the hype that seems to be attached.

What are the main considerations for within corporate treasury?

Those who have an understanding of the technology are asking themselves, “What is it that a blockchain provides that cannot be achieved via a traditional database with some form of central authority to run it?” From this, several questions then arise regarding the application of how blockchain can be used. These issues can include:

• Trust: How do I do business with people I may not know or trust?
• Immutability of transactions: Do they provide a tamper resistant record?
• Decentralisation: This reduces the risks around a single point of failure.
• Freedom from the influences of government or central authority
• Public vs private: Permissioned vs permission less
• Cost of deployment: Will there be a viable return on investment.

Is there anyone currently pioneering new technologies for the treasury industry? And will early pioneers benefit the most?

The onset of Openbanking has potentially opened the floodgates for a proliferation of start-ups focusing at interoperability between systems and new innovations that might just serve to disrupt the traditional banking markets and legacy technologies that are under invested, or decades old and in need of replacement. While the jury is out, it has at least opened up the possibilities for challenge, completion and innovation in the financial services space.

If you look at payments channels as an area of interest for treasurers, organisations such as SWIFT through their global payments initiative (Swiftgpi) are seeking to leverage off their current platforms to add the innovation that they need.

Ripple Labs is working in collaboration with a number of banks on its own system to challenge the dominance of SWIFT on global payments architecture.

Other areas of focus for financial institutions and of interest to the corporate treasurer will be is in the sphere of trade finance. Many banks working either on their own or with fintech start-ups to streamline the bottlenecks around documentation.

IBM have a major initiative underway under the banner of Hyperledger. It relates to technology devised at better servicing the supply chain while R3 is an organisation supported by multiple institutions and looking at the area of permissioned ledgers, through its opensource software, Corda, and the significant challenge around consensus protocols, i.e. How do I ensure that “I see what you see” when considering the validity of a transaction between counterparties who do not know or perhaps trust each other.

Will early adopters benefit?

It’s hard to say yet. With few solutions having been rolled out into a production environment, this is more hope that expectation. 2018 really does need to be a year of delivery.

What are the main challenges stopping the new technology being used?

The Bank of England stated it quite neatly in respect of the technology not being sufficiently mature enough to contemplate replacing its RTGS system using it.

The technology remains unproven and the risks remain significant at this stage for any reputable organisation. Even SWIFT seemed to have relegated talk of Blockchain development to other streams, preferring instead to focus on their core offering at this time.

When will we start to see the benefits?

It’s hard to say. Projects will really need to move beyond just a proof of concept

How will this affect the role of a Treasurer? Will they have to become more technically aware in the future?

There is always the challenge for Treasurers to balance their understanding of the technical aspects and the practical application. We talk of interoperability between systems. With the science of computing a specialism, treasurers with their responsibilities for understanding risk, will perhaps need to have a broader understanding of the technology in order to be “interoperable” with their IT peers who might be driving change through their own organisation or perhaps even their own product offering.

In addition, with all this innovation it may be that the treasurer may no longer be able to rely on their bank relationship to provide the buffer against failure of systems. The treasurer may have multiple providers across multiple systems and will need recognise and understand new boundaries and the risks they entail.