Analysis Featured

A Distributed Ledger For Alternative Lending, KYC, Digital Identity

SAP blockchain solution

SAP’s website is asking us to “Imagine people, businesses, machines, and algorithms all communicating in a frictionless way—where data sharing is fast, open, yet completely secure for all parties.” That’s what the company is seeking to offer its customers with the incorporation of blockchain technology to its Leonardo IoT (Internet of Things) portfolio.

The early evidence shows that isn’t such an unimaginable thing at all. In the middle of last month, the company joined with the Alastria Consortium and the Blockchain in Trucking Alliance (BiTA) bringing 27 customers and partners with a total market value of $819B. The partnership is evidence that we can imagine a seamless future in the lending industry and beyond.

And what are the benefits that the members of these consortiums believe in so much?

Benefits of Blockchain

The blockchain, a true P2P network, will reduce alliance on some types of third-party intermediaries such as banks, lawyers, and brokers. The transactions not being limited by office hours, the blockchain can speed up process execution in multi-party scenarios. The fact that all of the information is viewable by all parties and cannot be altered promises to reduce fraud and create trust. The use of the distributed ledger technology (DLT) will provide quick ROI by helping businesses create leaner and more efficient processes, which will make them more profitable.

The distributed and encrypted nature of the blockchain makes it difficult to hack and promises greater IoT security. The blockchain is also programmable making it possible to trigger actions, events, and payments once conditions are met.

Our interview with Nadine Hoffmann, innovation manager for SAP Financial Services, and Juergen Hofmann, the company’s solution manager for financial services, sheds a light on the benefits to business and industry and why SAP is a fitting company to grow these advances.

SAP’s Application of the Blockchain

While using the company’s hyperledger as a base structure, Nadine tells us that having encountered so many potential partners who want to add to the existing product has led the company to being what she terms as “tech agnostic.” She expands by saying, “We offer infrastructure to connect existing technology and advantage to combine with other technology, using machine learning to take the best of all worlds specifically for process and use.”

She says the DLT will help companies discern what the best technology is for their needs, with a focus on lending.

The full life cycle of lending is a slow and complex process because there are so many parties to cooperate with. Nadine tells us that onboarding can make it seamless with the use of the DLT. The blockchain customer owns their own data and is in charge of how and with whom it is shared, which leads to greater transparency. The ownership of a “single source of truth” will allow customers to reach real digitalization.

Juergen chose to focus on two examples of the benefits SAP has already seen, one in the area of bonded loans and the other as pertains to KYC (know your customer).

In the case with bonded loans, as SAP exhibited through its partnership with Deloitte, the bond comes with a bond and a loan aspect, but since it isn’t dealt across a stock exchange, it isn’t subject to DOC rules. Also, we once again see speed and efficiency as an upside. With the exchange and confirmation of information and requests for changes, the process of issuing bonded loans manually is more time consuming. What’s more, if a customer later wants to sell his or her share, banks might not be aware of it, which creates KYC issues.

The Deloitte blockchain solution creates a digital asset and different investors buy a piece of it. It serves as a marketplace, a shop window, and source of P2P transactions. The offering can be made to all of the peers in a network and to a specific network.

When it comes to KYC benefits, it’s really pretty simple. Juergen gives us this example: You walk into a bank you want to do business with. You have to provide them with all of your information. Then, you want to do business with another bank, and you have to do the same thing. The distributed ledger solution is to store a customer’s ID and link it to their personal documents, which are not stored on the blockchain. Once the transaction is cleared, the link is established and the documents are accessed to prove identity and the onboarding process continues. In this, SAP provides a solution to KYC issues, with running proof of identity.

In terms of regulation, Juergen says the data of a trade must be tamper proof, and the SAP DLT can be advantageous to those ends in that it records transactions as a “single source of truth,” which is tamper proof and contains info that is easier to access in real time.

SAP’s Blockchain Application Over Its Competitors

Nadine tells us that SAP has the edge over its competition because the company is active in 25 industries, not only in lending cases, but in all of its DLT cases. She reminds us that, quite often, the company is doing work that spans multiple industries. The SAP DLT breaks down former silos and gives a 360-degree view of a chain. Working across industry lines in this manner helps to create the ease with which parties from all industries can integrate.

Juergen underscores this, adding that, in the case with bonded loans, the company’s advantage is that it has strong capabilities with its other solutions.

Still, the technology being what it is, and the company’s tech-agnostic stance, means that there really is no competition. Yes, there are similar offerings from other large software companies, but there’s a lot of space in the market for more than one company to find the right footprint.

SAP Blockchain Performance Benchmarks

The technology is still evolving. It is not yet mature, which means we have no history of performance to report. Currently in the pilot phase, the technology will go live and be available soon.

When it does become available, SAP’s DLT will become so for everyone, and Juergen tells us that there won’t be a typical customer. From small firms to major banks, the broad range of companies in business with SAP, along with the global reach of the company, help to create a blockchain that will benefit fintech companies as well as traditional companies as the technology changes how everyone does business.

SAP’s Fit with the Direction of the Industry

Nadine assures us that SAP is pleased with its tech progress and that they have multiple use cases ongoing in every industry–public sector, telecom, and healthcare; and that every industry is working on blockchain topics but not limiting technology. Through the IoT, machine learning, and DLT, the company is furthering its investigation into and introduction of new products for customers.

Nadine also sees the advantage of the openness of the market. “There are a lot of players approaching lending, not only banks. Industries are creating their own banks and creating alternative lending markets. We’re investing in all of this.”

When asked what the company is looking for right now, she assures us that SAP is “very good” when it comes to the tech side. The hurdle to face now comes from the legal and regulatory side. That is on its way she tells us.

Conclusion

It seems only rational to think that we are going to get to the point where the blockchain is in place and well-functioning in accordance with the SAP vision. This is the latest and most adroit technology when it comes to the streamlining of data sharing and acquisition, and it’s just human nature to go down new avenues and do what comes next. We learn beyond what we had previously known and we use it to make our lives better and easier, and that’s what we’ll do with the blockchain.

Is there any reason to think that SAP won’t be one of the companies at the forefront of this application? Not at all. With the company’s vision, establishment in all industries, and existing IoT and DLT structures, they are a safe bet to be among the leaders paving the way into this seamless version of what’s next.

Author:

Written by Paul Keenan.

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