Siemens, a global leading technology company, is using Distributed Ledger Technology (DLT) to make payments in dollars and euros. Blockchain is most often associated with sending and receiving cryptocurrencies, particularly bitcoin. But treasury teams are increasingly tapping into its benefits like encrypting data and recording immutable transactions to make instant payments in FIAT currencies.

Heiko Nix, Head of Cash Management and Payments at Siemens and Nervin Chetty, Executive Director, Head of Transaction Banking Sales, Germany & Nordics at Standard Chartered believe it’s time to debunk some common blockchain myths: the technology is neither prohibitively complex nor exclusively tied to cryptocurrencies.

Blockchain, they argue, could be one of the most important technologies to unlock the real-time, 24/7 payment capabilities that are hailed as the most transformative shift for treasurers in decades. The hype and disillusion phrases that accompany any new technology are over and blockchain is finally being used for real world benefit.

Getting started

The treasury team at Siemens were already familiar with the compelling benefits of DLT technology. They wanted the ability to execute global payments in real time; the team also sought programmability and the capability to trigger transactions on any data tapping into benefits like self-funded bank accounts rather than static cash pools.

Programmable payments such as standing orders already exist, but DLT adds a whole new offering and product suite, says Nix. He adds that Siemens also interested in tokenization, the digital representation of any real-world asset and the ability to trade those assets – a feature the company has already made use of when it issued digital securities earlier this year.

“We use the combination of programmability and tokenization to obtain the ability to issue commercial paper via blockchain and receive the funds directly in our bank account synchronously,” he says. Another benefit of the technology is that it is local, enabling Siemens to use shared infrastructure with our banking partners instead of interfaces like EBICs or Swift.

Mindful of its far-reaching benefits, the next step was to harness DLT to move traditional FIAT currencies dollars and euros rather than Bitcoin. Siemens treasury can’t use bitcoin to make payments to vendors or pay salaries, explains Nix. “From a practical standpoint, we can’t do much with cryptocurrency and there is also a lack of controls and a high level of volatility.”

Nix believes the best place for treasury teams to begin weighing up if it’s the right technology for them is to assess the potential benefits.

“Ask yourself if you have a business that would benefit from 24/7 cross border payments in real-time. The technology is suitable for firms looking to future proof treasury, or just seeking an alternative way to make payments. Next, ask if you are ready for the technology, and in a position to operate 24/7 and your IT systems can handle API calls.” The next step is to put the infrastructure in place in a step-by-step process that begins with opening bank accounts on blockchain.

Chetty suggests one way treasury teams can ascertain whether the technology is suitable for their company is to focus on the problem they are trying to solve. This could be trapped cash, more efficient cash flow forecasting, or real time payments. It also offers a compelling alternative to holding liquidity in multiple entities. Because DLT allows the transfer of liquidity on an inter-company basis, it offers round-the-clock liquidity and reduces the need to hold cash at a local level.

“Think of blockchain as a new way of moving money around the globe and optimising how liquidity is accessed. It makes moving money secure and scalable and allows current processes to be simplified and optimised in a regulatory-friendly manner.”

Using blockchain to make payments in a FIAT currency removes significant correspondent costs from intermediary players and the expenses that come with friction. The technology also helps combat fraud and supports KYC: payments have an in-built audit trail and traceability, as all transactions are recorded on the blockchain.

Debunking complexity

It’s possible to integrate blockchain technology into a standard bank account – it will just mean the account has more advanced tech features. It’s ability to seamlessly integrate with existing account infrastructure means using blockchain doesn’t involve changes on the client side. Banks oversee the messaging; attach the account and add APIs. They can also link in any regulatory context like ISO 20022 in the normal way.

“It really is just an alternative method to enable movement of funds globally using APIs,” Chetty reiterates. “All payments just follow the usual protocols and processes; it just moves messaging to a real time basis.”

Looking to the future, Nix and Chetty envisage important new applications for the technology. For example, it could increasingly be used to execute payments based on delivery data. “We are working on how to trigger vendor payments based on shared and trusted data and not via an ERP payment run,” says Nix. “This has the potential to open micro payments and pay-per-use in benefits that go beyond just treasury.”