When blockchain arrived, one of the most popular use cases that captured attention was its potential to improve supply chains. Advocates promised it would deliver increased transparency. We would know more about the movement of goods, about their origins, about potential disruptions, and overall information sharing would be much easier. Blockchain was also lauded for its ability to streamline costs and operations, both through the more open flow of information as well as by using more modern technology.
Following this, starting in 2016, supply chain participants and companies were inundated with pressure to adopt blockchain technology for their tracking.
Yet, while the aim of bringing more transparency to the global supply chain was admirable, blockchain simply could not deliver on this promise of lowered costs and streamlined efficiency. Mainly as it didn’t consider the significant legacy transformation costs, the exposure of sensitive data to competitors, and many other operational realities.
But blockchain hasn’t been a complete loss for supply chain. Rather, it is the foundational technology that powers something even more important for global fund and value flow: digital payments. The advances in digital payments technology, like the easier and instant exchange between global currencies, transparent fund flow, and globally accessible digital currencies, that have come about as a result of blockchain have done more for supply chain professionals than blockchain pilots ever will. How? By making it so that money in a supply chain continues to move efficiently and effectively and, in doing so, delivering on what consumers want.
The emergence of blockchain-for-supply-chain-pilots was inspired by the same objective: to give consumers what they want. There was a deep insistence that the consumer wanted to know where their bottle of Bordeaux came from--which specific plot of land!—but the larger picture was missed, which was that consumers wanted to get their products reliably for as little cost as possible. That is the problem supply chain professionals have been dedicated to solving for decades, and the integration of costly, compute-intensive blockchain programs would only make the problem more complex. Not only that, the cost of evolving technological systems to make this data interoperable and blockchain-readable would be in the billions across the sector, which would inevitably lead to higher costs for the consumer regardless.
Instead, some supply chains have pivoted to digital currencies (of all kinds, not just “cryptocurrencies”) and have been able to more effectively make payments and ensure that everyone in the value chain gets paid on time, with less money lost to foreign exchange losses, fees, and time delays. The cost savings are significant; the executive director of payments for the Bank of England reported earlier this year that cross border payments are set to increase in value to more than $250 trillion by 2027, up from $150 trillion in 2017. For companies moving funds, even marginal gains saved by using a more efficient payments system (also called payments rails) can generate huge value.
Digital payments, first, significantly reduce transaction costs. Traditional banking methods often come with steep fees for money transfers, especially for international transactions, which can eat into the profits of businesses. In 2021, the World Bank reported that traditional banking methods for sending funds, such as remittances, can cost 6% or more of the transfer value. In comparison, digital payments circumvent these high costs by leveraging technology to streamline the transaction process, eliminating the need for intermediaries, and thereby cutting down on fees.
The speed at which digital payments can be processed and finalized is another game-changer for everyone in the supply chain. Traditional banking can lead to delays due to their reliance on standard operating hours and slow processing times, taking up to 10 days to transfer between some jurisdictions. In contrast, digital payments are speedy, often executed and settled in real-time, regardless of geographical boundaries.
By ensuring payments are prompt, digital payments minimize the window for exchange rate shifts, safeguarding supply chain stakeholders from currency losses.
To summarize: Nowadays, some companies that use digital currencies as part of their fund flows can pay their vendors across the entire global chain of partners, from the U.S., within one working day.
If you work in the global supply chain, ignore the distractions of launching a blockchain supply chain pilot. Instead, inquire with your payments partners and ask three questions. At the end of this line of inquiry, it should be easy to see if, and how, your payments function is able to save your business more money and time.
- Are you utilizing digital asset payments rails? If not, why not? They may answer that due to their licensing or regulatory restrictions, they are not able to. If so, ask them if that also applies to “normal” digital currencies, like stablecoins, which are digital currencies backed by a normal currency like the U.S. dollar. Two popular ones are USDC or USDT.
- If they are, inquire: Are the savings in fees being transferred onward to your company? There should be some level of saving due to not needing as many intermediaries or brokers.
- If they are not using digital asset payments rails, see if they have a partner they recommend that does. It may be easier to integrate with someone within their ecosystem.
If you discover that your payments partner is not able to, nor interested, in offering at least stablecoin payments, then inquire with your vendors and suppliers. They may know of a payments provider used by their other partners that is licensed and has access to the jurisdictions you need.
