Blockchain might become a penicillin for small businesses, but plug-and-play solutions will rise to the top as the more efficient and affordable generic pills
Although Blockchain offers a strategic opportunity for small and medium businesses, even the most flexible SMEs are in no hurry to adopt this new data transaction tool. Moreover, the current high cost of сustomized solutions for enterprises is compounded by significant legal, technical, and financial issues preventing widespread Blockchain adoption.
SMEs problems overlook
SMEs account for more than 50 percent of the world economy’s GNP, in addition to over 99 percent of all enterprises, according to recent ATKearney research. For example, 62 percent of China’s GDP (6.9 tln US dollars) is produced by SMEs; small and medium-sized businesses produce about half of Germany’s and the United States’ GDP (57 percent and five percent respectively).
Financial barriers, difficulties in reviewing counterparties and chaotic document workflow limit an enterprise’s growth potential and complicate business processes. In sum, SMEs are forced to use the available resources inefficiently.
Financial problems mean that companies have difficulties attracting private investments and accessing banking and financial services due to the strict processes of proving a company’s reliability.
Services such as factoring and loans are usually used to cover the cash-flow deficiency, but obtaining them is complicated. Even if loans are obtained, the rates are usually higher than expected which makes the idea of traditional financial services for SMEs inefficient.
There are also difficulties that arise when trying to verify new counterparties who do not have the requisite documentation. These difficulties lead to an increase in the human resources needed to audit and validate their activities.
According to financial cryptographer Ian Grigg, the cost of KYC can reach up to 30 percent of the transaction volume.
Searching, structuring and verifying documents is a significant time-thief for SMEs. This problem has been encountered for quite some time by both traditional and digital means.
Today, small businesses use SaaS solutions, marketplaces, and B2B e-commerce platforms to expand their opportunities for growth.
The applications available allow companies to rapidly and easily adapt to changing business environments. Some of the most popular products include ERP and ERM systems, Digital Signatures, electronic document flow services, accounting and transport management systems (TMS), and various other tools for managing and monitoring a company’s activities. These solutions have created a real breakthrough in optimizing and synchronizing organizational workflow.
However, the solutions available on the market do not create an environment for seamless interaction among independent businesses within a single ecosystem. For example, data/document flow and circulation between counterparties in a single system does not take place due to a lack of trust.
SAP and Microsoft are creating solutions on the SaaS and ERP, while traditional banks try to design products respectively towards SMEs. Fintech startups such as Revolut and Srite are bringing financial ideas into the market.
Existing marketplaces are both a great help yet also a costly partnership because of their various commissions and fees.
For example, Alibaba’s membership fee is $1,500 per year, on top of the obligation to pay commissions totaling five to eight percent of the value of each transaction. The subscription fee for the Ariba Network is $2,250, with a limited number of transactions (499 per year). There is also an additional commission fee if turnover exceeds $50,000.
Still, solutions based on internet server architecture (http/https) do not offer the opportunity to create fundamentally new processes with legal validity. This includes the guarantee of data integrity and authenticity, verification of the transacting parties’ ID, and lower risks of a data breach.
These solutions, commonly described as the Internet of Agreements, can be created using Blockchain protocols.
Although many in the community strive for massive Blockchain adoption, there are still a small number of solutions for SMEs. Bringing technical as well as user-friendly functionality along with financial and legal solutions seems to be an ambitious goal for the community. Prudential (Singapore), one of the largest insurance companies in the world, along with StarHub announced a Blockchain-based digital trade platform to support their growth aspirations of SMEs in late 2017 with a public launch in early 2018 but there has been no word about it since.
The public ledgers that are traditionally used to create solutions for just about anyone, (SME’s included) are Ethereum and EOS. It is also possible that Codius by Ripple smart contracts implementation might work. The Chinese Nervos Network is developing a system which will allow businesses to connect a public Blockchain and private application chains, but that won’t be introduced for another year.
We still have to keep in mind that because many SMEs lack Blockchain expertise (or even not familiar with the tech), there is demand for products, not technologies. This critical moment defines most of the existing and upcoming solutions as being disjointed or unfocused and are not truly getting businesses out of the wheel of Samsara.
However, Blockchain R&D company Gravity Solutions is set to close the gap between SMEs and Blockchain products via its Business Framework, designed for use in off-the-shelf software and next-generation Blockchain applications which automate and optimize business processes for SMEs. The announced framework will consist of legal, financial and technical pillars which will be turned into tools or templates that can be easily integrated in existing products while also extending to existing SaaS solutions. We believe that this well-targeted approach is promising.
New business framework
SMEs lack Blockchain-related expertise and simply cannot afford custom-tailored solutions. Also, they have no time or resources to handle the legal aspects of Blockchain-based systems and smart contract use. The Gravity Business Framework (GBF) offers to address these issues and allow for a hassle-free, off-the-shelf experience.
The technical architecture of the framework is a set of components and modules based on the Gravity Protocol. Typical smart contracts (and later, turning complete smart contracts) are based on these components and modules. Gravity’s legal architecture provides for the “Extended Соntract” based on the Ricardian contracts. Furthermore, its financial architecture is a system of stable coins and gateways that allow businesses to avoid the huge expense of financial middlemen (banks and payment systems).
Note that the company is now at its testnet period, proving hypotheses and establishing partnerships. Since SME is such a wide sector, with different jurisdictions it is impossible to provide something that would fit everyone, legal issues could threaten good performance.
It is possible, however, to provide tools that can solve all of the most recurring problems, and it is up for integrators to customize them to reflect the reality of their country of residence. For instance, next month Gravity Solutions plans to introduce its pilot showcase toolset for factoring automation, the issue that no one has yet solved, but as everyone agrees, it needs a solution. Gravity intends to bring a product, not the technology to SMEs.
Key to adoption
Mass adoption of Blockchain can only happen by implementing market standards. Mass solutions based on these standards should be implemented instead of custom solutions.
In turn, this will only happen when Blockchain is used not only by major entities representing one percent of the market but by SMEs, which make up the remaining 99 percent.
Blockchain might become a penicillin for small businesses, but plug-and-play solutions will rise to the top as the more efficient and affordable generic pills.