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What your back office needs to know about blockchain

For Michael Mainelli, the concept of a blockchain isn’t a new one. He and his team at the London-based technology consultancy Z/Yen helped build a rudimentary example of what would become a blockchain, or a shared ledger, more than 20 years ago.

Now the concept has jumped to the forefront within the financial services industry. It has the potential to change jobs, reduce complexities between organizations, and simplify how business gets done across continents.

But so far, the technology’s impact on the back office has been minimal.

“They’re mostly just proof-of-concept and marketing documents,” rather than working blockchains, Mainelli says of current versions. For instance, it won’t be until 2025 that at least 10 percent of the global gross domestic product is stored on a blockchain. But that doesn’t mean blockchain won’t soon change the way financial offices, CFOs, and analysts interact with customers and other financial institutions on a daily basis.

What’s a blockchain?

Blockchain, best known as the underlying technology behind bitcoin, is a de-centralized electronic ledger. Here’s how it works: Traditionally, when money changes hands or a business’ finance team complies with anti-money laundering measures, a third-party group must verify the transaction—essentially a security step to keep everyone honest.

Blockchains cut out the middleman since the transaction details reside in software code within a database. When two parties want to process a financial transaction, the blockchain simply verifies and approves the details based on the code-based rules. It’s how a Bitcoin owner can spend his digital dimes while a store can verify the receipt.

Upending back office roles—soon

For the financial world, the ramifications are huge since the technology touches on so many aspects of what banks, insurance firms, and financial service operations do. Take, for example, the process of securing a business loan. Lenders could use a blockchain to verify a customer’s identity and financial information, and then approve the loan based on negotiated terms. Once in the system, a future loan could then be approved for the customer with a simple check of the blockchain, assuming the business’s financials remain within the requirements of the loan.

This reduces paperwork, provides added security, and could reduce the time it takes to process the loan. It’s a win-win for the lender and the business seeking the loan. In fact, Daimler AG and a German bank demonstrated this recently by using a blockchain to process a €100 million loan.

While it might take time for other organizations to follow suit, it doesn’t mean back offices can’t expect major impacts in the office—even in the early stages of blockchain implementation. Back-office employees will need extensive training to use blockchain databases, and to access information on the shared blockchain ledgers. Training aside, blockchain could be another new technology that helps employees do their jobs.

“They are unlikely to soon displace existing infrastructure,” says Mainelli, and financial analysts and compliance officers’ jobs remain more than safe. But if blockchains can automate or ease rote tasks, it’ll come as a relief to back office pros.