Insight

Blockchain and the future of finance

Explore the principles of blockchain through a finance lens and how CFOs can prepare for this revolutionary technology.

A potential new world for CFOs

Imagine a world with no out-of-sync ledgers. No need for reconciliations. No fragmented or hidden data that create multiple versions of the truth.

This world is coming, and its name is blockchain. As a revolutionary technology for recordkeeping, it is poised to change the future of finance—in accounting, asset registers, payments, trading, collateral management, and more.

How should you prepare for this wave of disruption? And what are the implications for your finance organization? In this paper, explore the principles of blockchain through a finance lens, including potential benefits, a framework for projecting the impact on core processes, and key trends anticipated by KPMG.

Blockchain and the future of finance

Explore the principles of blockchain through a finance lens, including a framework for projecting impact on core processes and KPMG's hypotheses for a blockchain world.

Report highlights

Implications of blockchain for finance

Blockchain technology holds great promise for finance organizations, including quantitative and qualitative benefits. Among them:

— Increased efficiency from transparent records and a single source of truth. By creating one version of a ledger that is synchronized across computers, blockchain can help eliminate out-of-sync ledgers and, therefore, the need for reconciliations. Transparency may also lead to other benefits. In trade finance, for example, all parties will be able to see when goods have shipped and review all steps of the transaction, which may significantly reduce the settlement time.

— Enhanced data integrity to reduce loss. With immutable records that are visible to everyone involved, blockchain may improve data accuracy and security, help reduce the risk of fraud, and show compliance through an audit trail. For example, when supply chain information is put on a blockchain, companies can potentially reduce fraud and errors, improve inventory management, identify issues more quickly, reduce delays from paperwork, and increase trust among all parties. Blockchain also offers the potential to create a single source of information around customer identity, reducing costs and risk related to Know-Your-Customer regulations.

— Improved customer experience through faster processing. By using blockchain to share information with clients and vendors, companies may be able to tap sales opportunities and serve customers far more quickly than with traditional systems for setting up new relationships. Blockchain can also enable consolidated, accurate repositories of customer information that can be accessed by all parties in the network.

— Higher availability of capital and lower cost of business. Thanks to consensus mechanisms and smart contracts, blockchain can minimize the time that capital is tied up for a transaction, instead triggering an automatic transfer of funds upon an agreed set of conditions. Blockchain will also eliminate some transaction fees by reducing reliance on third parties, and it will likely free up capital flows as the purchase of managed funds moves to real time.

 

Blockchain's impact on core finance processes

To project the impact and determine which processes are best suited for blockchain, KPMG developed a framework that evaluates each core process on four key factors. Read the report for these four factors and an impact analysis for the quote-to-cash process, a good candidate for blockchain.

 

Key trends anticipated as blockchain is adopted

Blockchain clearly will have significant impacts on the finance function, and most organizations will gradually adopt the technology as they envision a new operating model for finance. We anticipate the following key trends:

— Blockchains will connect to existing financial systems. Despite the benefits of blockchain, it will not replace traditional ERP systems overnight. Rather, distributed ledgers initially will supplement the systems of record, specifically in cases where balances are frequently recalculated as transactions occur. And while blockchain enables a real-time view of data, the integration with legacy systems may cause a delay in harnessing the ultimate value of the distributed ledgers.

— Blockchains will be a hybrid of private and public ledgers. As blockchain technology evolves, we expect finance organizations to start with private blockchains—such as a ledger shared within a company or shared by a company and a vendor—which will enable them to retain sensitive data while gradually embracing more public ledgers. These could include permissioned blockchains for industry consortia and other entities, as well as truly public blockchains that operate in an open marketplace.

— The regulatory environment will remain in flux. As blockchain decentralizes financial activities, governments will continue striving to understand and regulate the technology. And those that do so effectively will have an opportunity to attract global investment and become frontrunners in a blockchain economy.

Read our report to learn more.