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
So, here in the northern hemisphere, we’re still basking in waning remnants of sunny days and lingering high temperatures. Though we’re not wishing the sunshine away, us northerners here at ACI also can’t help but let our minds turn to the chillier times ahead with fall and winter approaching.
And we all know what fall and winter bring: shopping. Lots of shopping.
Positive Profiling Makes Everyone a Winner in Gaming
Online gaming is one of the fastest-growing segments within the broader entertainment industry. With 2 billion active gamers worldwide and 200 million people playing games on social networking sites at least once a day, it is no surprise that the market is now worth well over USD $100 billion per year.
Top Tips to Battle Payments Fraud in Gaming—From a Millennial Gamer
The gaming industry, from a consumer point of view, has evolved dramatically over the last 5-10 years. The buying process has rapidly changed from a one-time, final payment – often at a physical store for a physical product – to a series of never ending bundles, boosters, skins, downloadable content and in-game currency sales!
Online Retailers Are Fighting Account Takeover Fraud Fires
Online merchants and retailers are facing an ever-growing threat from account takeover fraud, which is accelerating within the card-not-present space. Account takeover occurs when user credentials for a retailer’s website are compromised, leading to exploitation of a consumer and potentially offering a large return on investment for the fraudster. Per research from ACI Worldwide and Javelin Strategy, this type of sophisticated attack accounted for a staggering USD $5 Billion in fraud losses in 2017 alone. The card-not-present environment, due to anonymity, allows a fraudster to hide themselves in the act.
Hat in Hand with 17 Heads: Payments Innovation and the Fraud Pitfalls to Avoid
Imagine that you live in a world that is revenue-agnostic, where payments revenue is so far decoupled from the payments channels that they ride on, and that startup culture and venture capital allow for the creation of all sorts of innovations that have some creative monetization that keep the train on the tracks. If you got halfway through that horrific sentence and realized we’ve been there for quite a while already, I’m impressed. It is essentially the cornerstone of banking, in many capacities.
Pints, Penalties and Payment Fraud: Welcome to the World Cup
You’d think that England already had the World Cup in the bag, based on the nationwide scenes of jubilation after the Three Lions’ penalty-takers had gone against the (painful) grain of football history, and emerged victorious at the end of a scrappy match against Colombia. However, those cries of “It’s Coming Home” from English football fans may just be a little premature, given that there are still three matches to play (and win) before the English can lay claim to being world champions for the first time in half a century.
Slam the Brakes on Gas Pump Fraud and Rental Car Scams This Memorial Day Weekend
The process of secretly reading data off credit and debit cards (aka skimming) could be netting criminals as much as $3 billion a year in the US, according to Bankinfosecurity.com.
As we look forward to Memorial Day weekend here in the U.S., travelers are getting ready for road trips to their favorite destinations. Whether it’s a beach party in Miami, snorkeling in Catalina Island, or even a staycation, payments – and more specifically, payment fraud – is a huge consideration for travelers, especially during the holiday weekend. I sat down with one of our payments fraud experts, Seth Ruden, to talk about what travelers must look out for regarding payment fraud and how they can keep their money safe. Here’s what he told me.
Despite the Hype, Machine Learning, Models, Behavioral Profiling and the Customer Experience are Still Fundamental
Think about the last time you got a fraud decline. Where were you? In the grocery store? Buying airline tickets? On holiday? Shopping in the same place you’ve been a dozen times, but across the border? How frustrating was that, what did it do to your perspective, your mood, your confidence in your financial institution? This can be embarrassing and inconvenient, stressful and alarming for the consumer. There are few things that can be more disruptive in our day-to-day lives then the lack of access to your funds, or the care taken by your financial institution after a fraud occurs. According to ACI’s Global Consumer Fraud Survey, 20% of people may decide this is too much and move along to another financial institution.
Cross-Border eCommerce Expansion: A Fraud Perspective
For merchants that are expanding their online presence overseas, enabling the right locally-preferred alternative payment methods and connecting to local acquirers can be a critical determinant of success. But without considering fraud management strategy in tandem with payments strategy, the road to cross-border success could be a bumpy (not to mention costly) one.
The 12 Biggest Security Threats to Payments
Consumers ask a lot of you in terms of convenience, speed and, above all, security. This puts the pressure on you to offer a pain-free consumer experience that is also highly secure. And when you accept payments, you need to secure all parts of your organization. Here’s an actual example: one major breach occurred when an air conditioning vendor was hacked, allowing hackers to access the corporate network and finally the point of sale network. This highlights the importance of understanding the threat landscape we face today.