Even the most efficient finance teams may be expected to incur a cost of 0.55% of a company's overall sales, as stated by industry experts. The expenses are multiplied by a large amount for teams with average and poor performance, but teams with top performance have costs that are 36 percentage points lower than those of teams with average performance. Because of this, Chief Financial Officers (CFOs) have had to transform the finance department into one of their top priorities.
The Blockchain Technology
This innovation came to the mainstream with the advent of cryptocurrencies and major crypto exchanges like bitcoin revival used it as a database to keep the transactions secure. The blockchain, which is sometimes called a "distributed ledger," is a database that is made up of the following parts:
- Decentralized systems allow for the direct addition of data by all participants, without the need for a centralised authority to manage it.
- Transparency and identification may be kept private, and activities could be watched by everyone on the internet.
- When information is posted, it is granted permanent status and can't be altered afterwards.
Blockchain In Finance: Challenges For CFOs
Transformation is a strategy that CFOs use to deal with several important problems, such as:
- Increasing the efficiency with which processes like ledger management, payments, and reconciliation are carried out.
- Reducing the amount of time it takes to respond, which will have a positive influence on both customer satisfaction and the adaptability of the company.
- Increasing the openness of transactions while also ensuring their precision.
- Making sure that everything complies with the fact that rules are always being updated.#
- Bringing down the number of instances of fraud and duplication.
- Given the nature of these problems, blockchain technology could be a big part of the plan to change the way the finance department works.
The Deployment Of Blockchain In Finance
For instance, a finance department that uses blockchain to keep ledgers won't have to record transactions independently based on receipts if they use this technology to manage their ledgers. Alternatively, activities are going to be stored in an accessible and shared ledger that is going to be dispersed across numerous nodes. The specifics of an operation like this, including the cost, the item, and who owns it, would be logged, confirmed, and resolved in live time throughout every network.
In the world of finance, blockchain technology can be used in several situations and ways that depend on the situation.
- Managing information in real-time.
- Modifying existing methods of payment.
- Lessening the amount of time spent reconciling.
- Simultaneous completion of the settlement process for transactions between companies.
- Consolidated financial perspectives of group firms are one type of reporting.
- Accounting tasks include keeping a book of accounts, accounting for products, and accounting for projects.
- Administration of finances, including preparation for cash flow, budgeting, and projecting revenues and expenses.
Why Do We Observe Slow Acceptance Of Blockchain In Finance Sector?
Even though the vast majority of businesses believe there is a strong economic case for using blockchain technology in financial functions, implementation of this technology has been cautious thus far. 60% of revenue and accounting managers said that they do not make use of distributed ledger technology, even though 50% of respondents favoured using the technology. Further research on organisational top management discovered that although 84% of respondents agreed that blockchain would become a world standard in the coming years, almost half of those surveyed publicly acknowledged that blockchain would either not be among the five major key plans or that it wasn't a top imperative at all for their organisation.
One of the reasons for this is that the innovation itself remains in the process of development, and so, specialists are continuously attempting to discover answers to problems such as compatibility. Another factor is the lack of a comprehensive ecosystem, which is essential for using blockchain technology in the financial sector.
The Perks Of Blockchain In Finance Sector
The use of blockchain technology in business is supported by an almost universal consensus. CFOs that plan ahead should make getting their companies ready to use this technology to obtain a competitive advantage one of their top priorities. Alterations will need to be made both inside and outside the business to ensure the proper adoption and operation of the blockchain. These are the following:
- Internal Recalibrations: Changing the company model to accommodate administration, legislative, tax, and compliance needs Increasing the knowledge of current employees and recruiting those with blockchain expertise determining the scope of the expenditure that will be necessary to integrate blockchain technology with preexisting platforms and technologies
- The legal environment that must be in place to effectively regulate vendors, producers, and other middlemen is an extenuating circumstance. Protecting the points at which blockchain-enabled applications are most likely to be breached. Identifying potential opportunities for cooperation among competitors
To Sum It All Up
The distribution network takes the top spot with 50% expenditure in blockchain technology, electronic files come in second with 44% expenditure, and payment claims come in third with 30% financing. The benefits offered by the blockchain are starting to be used by early adopters. The research also found that 69% of respondents intended to use blockchain technology instead of their existing record-keeping method.
In addition, regulatory agencies are making preparations to offer the necessary support that this technology requires. In the United States, the state of Washington has just approved a piece of legislation that would recognise and safeguard the constitutional basis of electronic documents that are associated with public blockchains.
The use of blockchain technology is rapidly becoming an opportunity that cannot be passed up to make the financial sector more effective, transparent, compliant, and strategic in the not-too-distant future.