Treasury executives have tended to be skeptical about the practical use of blockchain technology, in part because it remains somewhat esoteric and perhaps also because few proposed use-cases have applied directly to corporate treasury. A recent webinar discussing the application of the technology to the settlement of intercompany transactions may convince them otherwise.
Treasury Alliance Partner Daniel Blumen, who conducted the presentation along with Somil Goyal, COO of Adjoint, a Fintech firm that is testing just such a solution, described the webinar as well-attended given the somewhat obscure subject matter. Even as recently as last spring, the vast bulk of treasury executives attending NeuGroup meetings acknowledged not understanding blockchain technology well, although their interest was clearly growing.
Intercompany transactions, often conducted via an in-house bank, have become essential for multinational corporations (MNCs) seeking to leverage internal resources more effectively. However, the overnight batch systems most companies use to settle transactions, including intercompany loans, FX and netting, can cloud transparency into subsidiaries’ account balances and result in significant costs if the transactions are facilitated by banks or other third parties.
Mr. Goyal explained in detail how Adjoint’s solution, now in the pilot phase with mulitinationals, makes use of distributed ledger technology as well as smart contracts and application programming interfaces (APIs) to provide a secure and cost effective way to settle such transactions. The private permissioned system allows a company to choose who has access to it and settles transactions in real time, rather than overnight or longer. The transactions’ regulatory and compliance requirements are automatically satisfied by smart contracts, and application programming interfaces (APIs) transfer information and data between siloed corporate entities and their banks and data providers.
Although Mr. Goyal declined to name them, two MNCs piloting Smart Treasury sang high praises of their results so far using the system. One noted how it significantly reduces current complications in processes including cross-border payments and billing, while another estimates “annual savings of $10 million from transaction costs and labor costs from just a simple implementation across a few subsidiaries.”
One participant at the end of the webinar inquired about the advantages that a blockchain-based intercompany settlement solution such as Smart Stream provides to a company that already has a functioning enterprise resource planning (ERP) system and treasury management system (TMS). Blumen responded that the distributed-ledger technology does not seek to replace those systems but rather compliment them by speeding up transaction settlement so the data is much more timely and secure.
It provides “extraordinarily efficient workflow, with tremendous accuracy,” Mr. Blumen said. “There are no unmatched items, because blockchain simply doesn’t allow that.”
Mr. Goyal summed up three benefits of applying distributed ledger technology. One is enabling treasury executives to see balances across the entire corporate group, in different geographies, and at any point in time. A second is increasing efficiency internally while also reducing third-party costs. And a third is what Mr. Goyal described as transformational: Facilitating companies’ ability to do different forms of intercompany funding as well as more effectively use liquidity in functions such as supply chain finance and refinancing.
“How can companies use this real-time financial data for transactions that historically were not possible at all?” Mr. Goyal said.