Thirty percent of businesses reported some sort of fraud within their supply chains last year. In addition, UK businesses also lost over £40m last year due to fraudulent activity carried out by employees, with London businesses being hardest hit with 29% of those losses. A certain degree of trust in staff is required by all businesses when it comes to anyone involved in financial transactions, however, many organisations are now waking up to the idea that Blockchain technology could be used by procurement teams to help prevent internal or external fraudulent attacks.
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Ninety percent of North American and European banks are currently exploring Blockchain’s potential to combat fraud. As a digital ledger of transactions that can’t be corrupted the finance world is realising its potential to reduce fraud. Blockchain enables smart contracts to be introduced that can store rules for negotiating contract terms, automatically verify contracts, and execute the terms. Any parties transacting with each other who try to change the contract or the agreed transaction can only do so with other participants in the Blockchain consenting to it.
Invoices are just one example of where Blockchain can help prevent fraudulent behaviour and stop a supplier’s invoice from being tampered with. But through Blockchain, all transactions and alterations made within the system must be verified by network participants. Using an algorithm, which is essentially a set of rules, all network participants will be able to establish whether alterations being made are legitimate.
Data held within a Blockchain isn’t held in a central place. Cyber-criminals, therefore, have no obvious target to carry out an attack, as the data is held in all PCs within the Blockchain. All network participants would have to agree to granting access, making it impossible in theory for a third party to hack into it.
It becomes particularly important for a business to put measures in place to reduce fraud when introducing operations overseas, and in countries where scams and misconduct in business are rife
It becomes particularly important for a business to put measures in place to reduce fraud when introducing operations overseas, and in countries where scams and misconduct in business are rife. Brazil is the biggest single market in Latin America, but fraud is rife there, with half of Brazilian consumers citing card fraud in the past five years. Brazilian oil company, Petrobras is under fire through Operation Car Wash, an investigation into bribery allegations to award contracts to construction firms at inflated prices. There’s no escaping the unscrupulous behaviour of some individuals, but Blockchain adds a layer of protection for any transactions that could be subjected to a cyber-attack for fraudulent purposes.
Blockchain also has the potential to prevent double spending with cryptocurrencies. Fraudsters have found a way to use digital payment systems such as Bitcoin more than once, but Blockchain can prevent another attempt at spending using the same cryptocurrency taking place.
The Blockchain market is expected to grow to $20bn by 2024 and, having proven its fraud-fighting credentials, more and more organisations are likely to consider how it could benefit their own finance and procurement processes. Experts predict that eventually businesses will be using Blockchain far more widely, changing the way we manage data, store files and make payments online. As Blockchain begins to become a more mainstream technology, organisations have a lot to gain by exploring its potential to prevent fraud and much, much more.
Peter is CTO of Wax Digital, who deliver the web’s favourite integrated Source to Pay solutions to savings-focused organisations around the world.