How B2B Brands Can Benefit From Smart Contracts
The current competitive business environment and the highly informed customer, call for an almost instant speed for transactions. The advances in technology have exacerbated the need for speed so much so, that slow webpage load speeds and complicated checkout processes could severely affect a business’ conversion rates. Paper contracts can take a whole ‘eternity’ of weeks to travel around the world. Unfortunately, digital documents, on the other hand, are uncomfortably easy to forge. Is there a way that B2B brands among other entities could get to automate their transactions and contracts in an easy, efficient, smoother, secure and faster way? 90% of Leaders in the B2B industry are looking at smart contracts as a viable option.
Research by Accenture, a business and technology firm, found out that, banks could save up to $12 billion per year if they adopted the use of smart contracts. The bank’s infrastructure costs could see a reduction by 30% and also reduce compliance costs by 50%. This finding only goes to show that there are many ways that B2B brands can benefit from their use of smart contracts and the blockchain technology.
Defining Smart Contracts
According to Forbes, Smart contracts are digitally signed, self-executing and computable contracts signed between two or more parties. They are software that is linked to the blockchain and helps keep track of the terms of an agreement and also facilitates the steps towards the execution of the agreement. With regards to the B2B sector, the terms of the contract drawn between the buyer and seller are in lines of codes. The agreements laid out in the code in the contract are stored in a blockchain network that is decentralized and distributed. It is important to note that some of the key features of blockchain and smart contract are immutability, transparency, and decentralization among others. These features prevent any form of alteration on original content. Additionally, smart contracts are decentralized and therefore have no single point of failure. Smart contracts, therefore, help business exchange their goods, services, property, money, shares or anything of value in a transparent and conflict-free way.
One of the strongest arguments in favor of a smart contract is its ability to ‘cut off’ of middlemen from transactions. According to Nick Allen, the product director at Zap, “Businesses spend countless hours and immeasurable amounts of money on administrative costs, including escrow, legal fees, time spent negotiating, etc. Smart contracts automate payments, making the entire process much more streamlined,…. Smart contracts are written in computer code (solidity, Serpent, etc.) that autonomously execute the terms of the contract once the specific predetermined conditions of the contract have been met.”
2017 witnessed an incomparable rise in interest for Bitcoins and by extension smart contracts, which were the driving force behind the escalation in this demand. According to Swissborg, Bitcoin was the most googled word in 2017. This means that consumers are taking a closer look at the blockchain technology and the smart contract phenomenon. Even governments are feeling the pressure towards advancing legislation and laws that concern smart contracts to match the shift in the digital divide.
Why the need for smart contracts?
Here’s why:
1. Speed and real-time updates- smart contracts make use of software codes to automate processes and tasks that are more often physically executed through manual means; this, as a result, increases the speed of various business processes.
2. Accuracy- Automation not only enhances speed but also reduces human error to a significant level and this means lower execution risks. Smart contracts and blockchain offer decentralized processes for execution. Adoption of smart contracts virtually eliminates any risks of errors, non-performance, and manipulation since the execution is done by the network and not by any individual party.
3. Fewer intermediaries- due to the inherent trust in smart contracts, there is less need for third-party intermediaries to provide ‘trust’ services between parties like the use of escrow.
4. Lower costs- Since smart contracts and blockchain require less human interventions as well as third-party intermediaries, they significantly reduce the costs of operation.
5. New operation models- due to smart contract’s low-cost way of transacting and operating, new kinds of business and models are sure to arise. Like peer-to-peer renewable energy trading, storage units, and automated access to vehicles among others.
How B2B companies can benefit from Smart Contracts
Here’s how:
· Streamlined transaction processes
Smart contracts can help streamline the fulfillment transaction processes of B2B companies and therefore simplify the transactions. For instance, smart contracts and blockchain can be used to innovate the transfer of digital products from one company to another by executing the transaction automatically. In fact, research by PricewaterhouseCoopers, predicts that by 2020, smart contracts will advance its role in facilitating the transfer of physical goods from one business to another.
· Unique identity
Bitcoin is a real example of blockchain’s power for unique identification. Proof of identity has been one of the challenges that many businesses grapple with in the face of increased rates of fraud. Smart contracts can help prove the identity of everyone in the world as it uses one single shared ledger across the divide. This is particularly possible when the primary data for identification fed to the system is correct. Smart contracts through proof of identity have made digital title deeds possible.
“Smart contracts as technology can readily be used to automate transactions. Businesses could already benefit from the reduced friction in the fulfillment phase of agreements. Jincor verifies the identity of individuals and companies that use the platform to ensure that transactions occur between legal entities.”
In addition to blockchain and smart contract’s use for proof of identity for people, B2B companies could use it to equip their products with single trackability. This could help them pinpoint genuine products from fake ones. It could critically cut down on fraud in vendor support that is generated by phony goods.
· Big data and process efficiency
B2B brands now operate in an information age; there are loads and loads of data to be analyzed, inferred and interpreted for B2B companies to make informed decisions. Smart contracts and blockchain automates this process and therefore makes it more efficient and effective in equipping management with necessary insights.
Deloitte researched use cases for smart contracts in B2B companies and summarized their findings in the following table.
Smart contracts- Creating a Supportive Ecosystem for B2B
For B2B, blockchain-based services can isolate major pain points, and work to resolve common challenges by focusing on streamlining processes and building a more equitable ecosystem that shuns middlemen. There is a world of advantages and opportunities for B2B companies in adopting smart contracts. The technology’s impact is more than hypothetical, with several applications/innovations emerging to disrupt several nodes on various industries’ supply chain. Smart contracts offer two main benefits for B2B companies: trust and speed. Is your business lacking in any one of these? You may want to consider incorporating blockchain or rather smart contracts into your business model.
