" class="no-js "lang="en-US"> Chain of command - Fintech Finance
Friday, March 29, 2024

Chain of command

As supply chain management software giant SAP prepares to test a DLT-augmented RTGS payment platform, Falk Reker, Global Head of the company’s Business Unit for Banking & Capital Markets, says corporates are hungry for change

The mood music around blockchain is changing, as a world of new possibilities emerges for the technology, many of them beyond financial services.

This fledgling innovation has had a somewhat Marmite-like appeal, with those who think it’s the answer to all the banking industry’s prayers, and others cautious until they see proof of what it can do.

SAP is among those actively pushing at blockchain’s door. At this month’s Sibos event in London, which itself is themed  ‘thriving in a hyper-connected world’, SAP will be seeking early adopters for a prototype real-time gross settlement payment platform, augmented by distributed ledger technology.

Developed with its partner R3, the solution combines the R3 Corda blockchain platform, SAP Payment Engine and SAP Deposits Management solution. It’s intended to allow interoperability and integration between DLT-based and classic fiat currency-based payment settlement.

SAP is the global enterprise resource management software provider, founded by former IBM engineers, that operates across diverse industry sectors, from pharma to banks, giving it a 360-degree perspective on blockchain and its possible benefits.

Financial services institutions may well have these other sectors to thank for finally bringing this ‘bright young thing’ of tech out of the lab and into widespread use, by giving it a tangible commercial value. SAP, which has had its fingers on the technology since 2016, is already using its Cloud Blockchain Platform service to track the progress of goods
as diverse as drugs, sugar and yellowfin tuna through the farm and pharmaceutical supply chains.

Falk Reker, the global head of SAP’s business unit for banking and capital markets, is among blockchain’s advocates. He says the company is now ‘realistic’ about how it’s best deployed.

“We don’t believe everything will be based on blockchain in the future,” he says. “But there are certain processes that can certainly benefit. Areas like trade finance and security settlement are perfect examples.

“Having the technology alone will not create success,” he cautions. “It needs to deliver business benefit and at Sibos we’ll be showcasing a joint solution we’ve developed with our partners to look at which areas of the cross-border payments process we can streamline, to create real-time payments and reduce complexity to a minimum.”

Universal value

The Research and Markets think tank recently pegged the potential global market for blockchain at $80million this year, rising to $2.3billion by 2023, as the emerging technology that some have viewed as ‘a solution in search of a problem’, is increasingly applied to real-world issues.

While SAP’s focus thus far has been mostly on its usefulness in trade finance, supply chain management and payments, elsewhere, blockchain is being used to improve openness in industries from diamond mining to global logistics and photographic licensing, by giant names De Beers, DHL and Kodak. In all cases, it’s the technology’s huge potential for connectivity and transparency that are being sought.

Its application in supply chain management is obviously key for SAP, given that, according to research firm Gartner, the company owns more than 25 percent of the world’s related software.

Customers access the blockchain via SAP’s Cloud-based apps. For example, major American supplier Bumble Bee Foods uses the platform to track the journey of yellowfin tuna from ocean to shelf, recording factors like location and size of the catch, freshness and sustainability, allowing consumers to receive information on where the fish was caught and its journey to store by scanning a QR code. While it’s obviously good to know where the fish on your plate comes from, it’s the potential to change the way the tuna was paid for, which is perhaps more exciting.

Proponents of blockchain say it promises to dramatically alter the way global transactions – corporate and personal – are processed, given that much of the world’s money passes through multiple stages and stakeholders to authorise and transfer payments, with an average cost of seven percent of the transaction. Reker says it’s time for such a step change.

“With all the initiatives to go digital and cashless, why are crossborder payments still such an issue for banks? With DLT, they don’t have to be so cumbersome anymore,” adds Reker.

“We’re seeing fintechs like TransferWise and others making great inroads into the market, and banks need to realise they need to move into this space.

“Today’s systems are based on the economy we had in the 20th Century, yet the world has dramatically changed. The processes need to be streamlined, with central banks playing a stronger role and helping the private banks to be more efficient. We see from online retail payment providers like PayPal, which have managed to get a huge market share, how efficient things can be. Similar needs to happen on the corporate payments side.”

It’s not all about blockchain, though. “We don’t want to provide only tools to our customers. We want to provide intelligent solutions, which could take the form of a chatbot, machine learning or blockchain to improve existing processes,” says Reker.

But the sudden growth in blockchain’s potential value is resulting in an ever-more crowded operating space. SAP is far from being on its own in announcing new solutions in the area of corporate finance.

Raising the stakes

In August, the first major US bank, PNC, began using Ripple’s RippleNet DLT for crossborder payments. As a result, PNC’s business clients can use the system to receive real-time international payments.

Meanwhile, computer giant IBM has developed a blockchain solution for cross-border payments by financial institutions, using the open-source Hyperledger Fabric platform and partnering with open-source blockchain network Stellar.org and South Pacific financial services provider Klickex Group.

“Corporates now expect the same digital experience as they receive in their private lives. The experience economy is critical going forward because if you don’t provide good customer experience, you’re losing your customers very fast,” says Reker, “and that means hyperconnectivity at all levels. It’s key to driving seamless, real-time, tailor-made offerings at the right point in time. If you don’t have the connectivity, you cannot provide all the things customers expect today from a commercial bank.

“Think how business is being done today. There are all these emerging ecosystems and platform networks and that’s exactly where the banks need to be.

“In the new digital world, there might not even be an industry called banking anymore,” he speculates. “Look at how the fintechs entered the retail banking market. They’re now supporting certain aspects of commercial banking as well and it’s absolutely crucial that banks and all types of software providers, like us, collaborate intelligently and be open to integrating with them.

“If we can jointly provide a better service, we will all be successful.”


This article was published in The Fintech Finance Magazine: Issue #13, Page 45 & 46.
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