Blockchain for Retailers: Producing Real Business Benefits
When I read about blockchain, I typically come across three use cases: cross-border payments, security issuance and digital currency. These have all been proven to work—and they are also finance-related. But the payments ecosystem includes a lot more than just financial institutions. This post explores the potential impact that blockchain will have on retailers and their value chain.
For those new to blockchain, I will give a simple definition (for those who understand it, feel free to skip this paragraph). A blockchain is essentially a record, or ledger, of digital events — one that is “distributed,” or shared between many different parties. A blockchain can only be updated by consensus. It is a distributed database that maintains a continuously growing list of data records.
What are the blockchain use cases?
The industry has coalesced around four groups of use cases. Within each group, there are many different use cases. My intent is to describe each use and give a practical example of how this use case has been deployed by a retailer.
Smart contract code is code that is stored, verified and executed on a blockchain. Smart legal contracts is the use of the smart contract code that can be used as a complement, or substitute, for legal contracts. In its simplest form, this is about "if X happens, do Y," without any human intervention. Use cases include anything from rental cars or apartments, through to complex machine-to-machine transactions involving advanced analytics.
In October 2015, it was announced that Visa was working on a smart contract proof of concept (PoC) for car leases and rentals. Visa worked with DocuSign to create the solution with the aim of reducing or completely eliminating paperwork that customers need to go through during the car rental process.
The Visa-DocuSign PoC involves registration of each car on the blockchain using a unique digital identity assigned to them. The car’s digital identity is then connected to a Visa payment channel and also to the DocuSign platform.
Whenever a customer wants to rent a car, they can pick the car of their choice and finish the formalities online while sitting inside the car itself. Beyond selecting the type of car, they can search, compare and choose insurance plans as well as other in-car payments like tolls, parking fees, etc. It is possible to enable all of these services by authenticating preferences using a DocuSign electronic signature. The information will be updated on the blockchain against the car’s unique identity, which can be readily accessed by the company.
Digital Currency & Fraud Reduction
Digital currency and fraud reduction is one of the oldest use cases for retailers. Of course, blockchain technology started with Bitcoin and has spawned many imitations. In 2014, Overstock.com became the first major retailer to accept Bitcoin as a payment. As the use of alternative payment methods explodes, retailers must be cognizant of the ways that consumers want to pay. Use of Bitcoin is still low, but could increase in the event of a financial catastrophe. With the finite number of Bitcoins available and the power required to mine for new coins, the value of Bitcoin might skyrocket and consumers holding the currency may want to change their virtual currency for physical goods.
The nature of blockchain technology makes it difficult for actors to create fraudulent entries on the ledger or alter existing entries. Typically in retail, every actor in the supply chain must pay a third party to validate the exchange of goods and money. Payments can be delayed as transactions are confirmed, which can be crippling for smaller businesses.
Placing the transactions on a blockchain platform will reduce the need for validation and improve the transparency of exchanges, settling funds transfers faster and reducing identity fraud. With every transaction verifiable and recorded on a ledger, there is a significant reduction in fraud.
Record keeping is perhaps the most complex use case, but one with tremendous value. It has many sub-use cases;
1. Transparency is of increasing importance to consumers. Provenance is a platform that helps brands provide that transparency by tracing the origins and histories of products. Consumers could trace the seafood they eat from boat to plate. Or verify that the wool sweater they just bought came from sheep that are humanely treated. Blockchain underpins this transparency, allowing all parties—supplier, manufacturer, retailer and end consumer—to trace a product’s journey.
2. Reducing counterfeit goods has been a problem that has plagued manufacturers and retailers for years. Block Verify is a blockchain-based anti-counterfeiting solution for pharmaceuticals, luxury items, diamonds, and electronics. Goods can be certified with blockchain’s digital ledger record, which mean that stolen merchandise can also be more easily recorded.
3. Warranties are often problematic for consumers. A growing number of consumer-focused companies are already using Warranteer, a service that moves product warranties from paper onto the cloud via blockchain, keeping them up-to-date and easily transferable. Consumers are able to maintain a virtual warranty wallet, saving retailers and manufacturers administrative work.
4. Supply chain modernization has been talked about in the industry for many years. Wave, still in testing, has targeted the global supply chain, hoping to modernize the receipt of cargo for shipment (import bills of lading or BoLs) with blockchain. The company has created a peer-to-peer and completely decentralized network that connects all parties of the international trading supply chain. Using decentralized technologies, all communication between these parties will be direct, eliminating the need for them to pass through a specific central entity. Connecting all members of a supply chain to the decentralized blockchain allows for a direct exchange of documents between them, solving one of the shipping industry's largest problems.
Walmart, IBM and Tshingsu University started working together in October 2016 to explore food supply chain traceability and authenticity using blockchain technology. The project comes as Walmart announced its new Food Safety Collaboration Center in Beijing.
Their goal is to improve the way food is tracked, transported and sold to consumers across China, harnessing the power of blockchain technology designed to generate transparency and efficiency in supply chain record-keeping.
I briefly mentioned securities earlier as one of the primary use cases in finance. Security issuance can be broken into two components: debt and equity. In terms of debt equity, Overstock is still a pioneer in blockchain technology adoption. The company started a new subsidiary, the T0 platform, which issued the first Overstock cryptocurrency bond. As a result, the SEC granted Overstock approval to issue public equities.
Nasdaq has launched its platform, Linq, marking the first time a company facilitated private share issuance using blockchain technology. Nasdaq has enabled issuers of equity to digitally represent a record of ownership in order to significantly reduce settlement time and eliminate the need for paper stock certificates.
There are a lot of use cases for blockchain technology, and the business case for each needs to be developed. A lot of companies exist that have a blockchain solution for a problem that does not exist—essentially a hammer searching for a nail. The use cases outlined have common benefits focused on simplifying existing relationships, reducing fraud and improving the speed of commerce. These benefits result in freed up capital and improved cash flow, as well as stronger relationships with both consumers and suppliers. A retailer cannot do this in isolation. As the saying goes, “it takes a village to raise a child.” In this case, the child is blockchain – young and full of potential. The village is the retail ecosystem: suppliers, consumers and regulatory bodies. Working together, they can harness the potential of blockchain and help it mature into a useful and practical technology, which provides real business benefits.
Related Blog Posts
Social, Mobile and Instant Payments: How Digital Payment Overlay Services Will Power Up P27
For some years now, the Nordics region has been a global-standard bearer for payments and financial services innovation. Sweden has for many years been a leader in the progressive move towards cashlessness, championing the range of efficiencies that it brings. Major payments innovators like Klarna, FundedByMe and iZettle are based in the region, rubber-stamping Stockholm as a genuine fintech hub. Analysts and insight leaders also regularly single the Nordics out as a genuine leader, in particular praising the collaboration between governments, regulators, financial institutions and businesses that has led to such fertile ground for financial modernization initiatives.
How to Meet ISO 20022 Migration Deadlines for Fedwire and SWIFT
Over the next decade, we will undoubtedly see huge shifts in how financial institutions throughout North America transact, whether domestically or across international borders. This will be driven not just by changing technologies, but also by regulatory events – such as the widespread adoption of financial messaging standards like ISO 20022.
How Can European Banks Meet the ISO 20022 Migration Deadlines for TARGET2 and SWIFT?
First published in 2004 – and already broadly used in some quarters – ISO 20022 is rapidly set to become the de facto standard for financial messaging around the world, replacing MT messages.
The Pathway to Global Real-Time Payments: What Will Be the Impact of SWIFT and ISO 20022?
The whole world is moving toward the ISO 20022 standard, and almost in unison. Globally, most major currencies are planning to shift to the new data-rich standard for either high-value payments or immediate payments (high value being global messaging via the SWIFT network or an RTGS scheme).
Digital Payments Overlay Services: Accelerating Real-Time Payments Growth
The global real-time payments landscape is transforming every day, as the world moves toward payments that offer a multitude of digital payment overlay services that drive consumer experience and adoption. But what are digital payment overlay services? They are ancillary services that often ride the real-time payments rails, and can be flexible, nimble drivers of innovation. These digital services – piggy-backing on the standard real-time payments rails – not only add value to core payments, but also bring about convenience and ease of use for all participants in the payments ecosystem.
Real-Time Payments: Global State of Play, Lessons Learned and How to Make Money
There is a lot of noise around real-time, immediate and instant payments. These interchangeable phrases are generally used to discuss the development and domestic rollout of non-card-based methods of payment that provide real-time notification of payment and fast settlement. So, given all of this ”noise,” where are we on the journey, what have we seen work (and not work) and can we make money from real-time payments?
Request for Payment and Other Real-Time Payments Trends That Will Shape 2020
In 2020, the conversation around real-time payments will increasingly be about what banks can do with real-time, as they move beyond setting up to support real-time payments schemes. New use cases will emerge – but there are a few main trends that are likely to shape the direction of real-time in the year ahead.
Nordic’s P27 Powers Ahead with Cross-Border Payments
P27 continues its accelerated journey to cross-border payments in the Nordic region, with an ambitious project scope and timeline. For banks, processors et al, this poses questions of prioritization. Payments players must identify their most pressing business needs, and what can be achieved with their current stack.
How India is Tackling the Challenges of Digital Payments Growth
India’s massive transformation from a cash-based society to a cashless society is underscored by the rise in fintech adoption and the growth of the Unified Payments Interface (UPI) platform, which is now processing more than one billion transactions each month.
Digital Overlay Services Unlock the Value of Real-Time Payments
The global payments industry continues to drive toward true real-time, with the potential opportunity for corporate banking often cited as the most lucrative.