Bitcoin Tech: Catching On With Treasurers?
Though many treasury and finance professionals are skeptical of bitcoin given frequent reports of criminal activity, those stories typically fail to distinguish between the cryptocurrency and the technological protocol that powers it. It is the latter that has recently caught the attention of the corporate world.
Why treasurers are interested in bitcoin’s technology
The bitcoin protocol starts with bundling virtually any kind of data into units that are attached to, and sealed irreversibly, in a digital chain—referred to as the blockchain. Documents or other data encrypted in the blockchain can later be accessed in their original, unaltered form. Besides encryption, thousands of computers with a copy of the electronic ledger can independently verify that the data has not been altered—a significant defense against cyberthieves who may seek to change documents or replace them with fraudulent ones.
Cross-border settlement advantages of bitcoin technology
Dave Morton, senior vice president and treasurer at Seagate Technology PLC, a major data storage provider, noted “friction points” that often result in delays and significant costs in existing treasury-related functions, such as wire transfers, and foreign-exchange and commodities hedging. Seagate is exploring ways to reduce that friction on a number of fronts with Ripple Labs Inc., whose Ripple protocol is the most well-known alternative to bitcoin’s.
“I couldn’t tell you how many times we’ve sat around frustrated, trying to do an international wire transfer,” Morton said. “Usually it will go through, but there’s not complete certainty, and you can’t track its progress.”
Banks are flocking to Ripple as a tool to increase the efficiency of cross-border settlement. The Ripple electronic ledger relies on a distributed network of trusted institutions—a few dozen known “validators”—to settle transactions in any currency pair every five seconds as new transactions are encrypted into it.
The bitcoin protocol, in contrast, permits virtually any entity or individual performing certain activities to maintain the shared ledger, and users must exchange in and out of the bitcoin currency in order to settle, a time-consuming exercise numerous technology firms are now seeking to expedite. Ripple, instead, can facilitate transactions in virtually any form of value, although now it is focusing on payments and the currency exchange.
How blockchain technology would help treasurers
Say a U.S. corporate is paying a supplier in India the equivalent of \\$1 million in rupees using Ripple. The corporate’s and supplier’s banks must each have adopted the Ripple protocol, so their internal systems can correspond with the Ripple ledger and authorize trading firms to pre-fund liquidity that will be used to settle payments. The participants—banks and trading firms—essentially exchange debits and credits on the ledger, and since the shared ledger assures each that the other can accommodate the transaction in their respective currencies, no wiring of funds or currency exchange is necessary. In several near-simultaneous actions, they essentially shift liquidity between accounts referenced by the Ripple ledger.
The settlement process: When the sending bank initiates the payment on behalf of its corporate customer, Ripple will automatically settle the transaction between the participants, providing an unalterable record that settlement has taken place. Following settlement, the bank transfers the necessary liquidity within the banks’ collateral accounts: USD from the corporate to the market maker at the sending bank, and the conversion currency from the market maker to the supplier at the receiving bank.
The disk drives and other products manufactured by Seagate require hundreds of components, and the Cupertino, Calif.-headquartered company’s supply chain stretches around the world. Morton noted that using the Ripple protocol should reduce wire transfer and FX fees, as well as enable Seagate to pay suppliers immediately in return for discounts.
“What if I were able to go to suppliers and say, ‘I’ll pay you immediately when I pull your product… What would that be worth to you?” Morton said.
Uncertain future
It remains an open question whether the technology is sufficiently robust to use on a scale required by global banks and corporations for their most transaction-intensive activities. Several banks, including Commonwealth Bank of Australia, Germany’s Fidor, and CBW Bank and Cross River Bank, both in the U.S., are experimenting with facilitating payments between subsidiaries using Ripple.
In those cases, the distributed ledger remains within their own network of servers, so no transactions occur with third parties. Cheryl Gurz, managing director and emerging technology segment manager for BNY Mellon Treasury Services, said her research suggests widespread adoption of the technology for corporate treasury applications might be as far as away as five to 10 years.
Ripple has taken the lead in terms of transaction-related services, but, Gurz noted, the new technology landscape is very fluid, and leaders take time to surface. There were a few hundred retail payment applications in the 1990s, and today PayPal dominates the arena.
Комментарии