Blockchain technology is the latest disruption that financial leaders need to tangle with. Currently, a majority of Controllers and CFOs are familiar with blockchain in terms of Bitcoin and other cryptocurrencies. But expect it to hear more about it.
In their 2017 white paper Blockchain and the Future of Financial Reporting, the Financial Executives Research Foundation (FERF) and Deloitte wrote,
“An increasing number of industry watchers and professionals say it will not be long before blockchain becomes the industry standard for accounting and reporting, upending decades of backend systems and reporting practices.”
With that in mind, here’s a look at what blockchain is and how it impacts the financial sector.
What is blockchain?
Blockchain is a public, digital ledger that records transactions between parties using a secure and permanent system. Each transaction creates a new block on the chain. Then, the transaction must be reviewed and approved by all network members to add a new block. Once a block is added, it can never be changed or erased without the knowledge and consent of network participants. This makes the technology tamper-proof. As such, much of the verification and reconciliation required in a traditional database is unnecessary.
How will blockchain impact the financial sector?
Bitcoin was the first application of blockchain technology, but its potential reaches far beyond cryptocurrency. Blockchain can move almost any asset securely from peer to peer, without “middle men,” like banks or government bodies. It provides more efficient and transparent transactions and needs less manual attention or reconciliation.
The Wall Street Blockchain Alliance, a trade association that counts KPMG and the AICPA in its membership, believes the blockchain will be a part of most financial transactions within five years. Financial professionals, including CFOs and controllers, typically play a crucial oversight role in many of these transactions. Therefore, their roles in facilitating and recording these transactions will fundamentally change.
Despite the alarming headlines, most major firms are investing in blockchain technology. They are also looking for ways to leverage it as it becomes more readily available. As reporting inaccuracies and opportunities for fraud become less common, reporting speed and validity will increase. As a result, financial professionals can become a more strategic partners in the business.
What can financial professionals do now?
Financial Executives International, a nonprofit organization working to advance the success of finance leaders, their organizations and the profession, recommends three actions:
- Define your vision. “A clear vision for the future finance function, which is aligned with the organization’s overall purpose and business strategy, gives finance team members around the world a common ambition and provides focus for efforts and investment decisions.”
- Rethink the technology. “A bold technology strategy for the finance function will be critical. The function will need to build systems and tools that enable disparate teams to share information and make connected, data-driven decisions.”
- Invest in people. “CFOs need to find new skills and capabilities required to exploit new technologies and increasing volumes of data. They also need to build their people’s softer skills, such as their communication and influencing skills.”
Disruption in the financial sector is coming, and change is coming with it. Educate yourself now. Once you do, you’ll be better prepared to control how blockchain technology can positively impact your company and your career.