It’s fair to say that blockchain, the technology behind cryptocurrencies such as Bitcoin, Ethereum and Ripple, is mostly associated with the finance and banking world. However, its use is now quickly spreading into many other industries, including retail, as its wider benefits are realized.
The reason why blockchain is so effective as a medium of exchange for digital currencies is because it creates a decentralized digital ledger. Put simply, once data is recorded, it is encrypted and packaged into a data ‘block.’ The block is never stored centrally anywhere, but is replicated across hundreds or thousands of computer networks around the world. At this point, no one party can ever make any changes, as any manipulation of the data would require overwriting considerable amounts of data in multiple locations. The block then forms part of a chronological chain, meaning that all data becomes permanent and traceable.
It’s this aspect that makes the technology especially exciting in the retail world. An article in Retail Potential claims that it could improve process efficiency by anything from 40 to 60%. So, in this article we take a look at three areas of retail where blockchain is starting to be utilized:
Take a look at this video to get a quick overview on what blockchain really means to retailers and then read on for more information.
Some retailers have already started to add Bitcoin to the list of payment options that are provided to customers, although on the consumer side, adoption of this is still very much in its infancy. However, as Shopify, which supports this payment channel on its platform points out, there are a number of advantages to offering the service. For instance, Bitcoin payments are cheaper to process than credit cards.
But its use in payments could also signal good news for retailers who deal with a lot of cross-border transactions. As well as significantly reducing costs, The Journal of Accountancy points out: “If implemented and marketed properly, this is a significant value-add that can lead to customer growth and help certain firms create an identity for themselves as an innovator and first mover.”
There’s also the chance to use blockchain technology to create what are known as ‘smart contracts,’ which have the potential to expedite processes within the supply chain and distribution. A report by Citi Bank gives an example of this in practice: “A container ship with bananas arrives in the Port of Rotterdam at an agreed time. By using scanning equipment, the quality and quantity are checked and approved. When these criteria are met, a payment is executed automatically.”
The Citi report concludes: “The best use for blockchain technology is where multiple parties need to trust and share information.”
This enables it to be used for far more exciting use cases than just payments…
In another example, blockchain could be used to create a permanent record of a product’s journey from manufacturer or supplier to customer. This record can prove origin and authenticity and would make it much harder for counterfeiters. It’s already being used to prove the provenance of diamonds.
Diamonds are verified using a paper-based certification system. But now, as CC Group explains: “Blockchain technology is being used to give each stone an additional unique identifier, calculated using 40 data points in addition to the traditional ‘Four Cs’ of diamond classification – cut, color, clarity, and carat.”
It has given rise to new organizations based on the idea: Provenance is one start-up in this space. Their vision is to give every physical product an open, transparent digital history and enable retailers to substantiate product claims with trustworthy data.
It’s likely that the early adopters here will be food retailers and luxury goods sellers. For food retailers, being able to track claims about where food has come from and its safety and journey to the store is a huge advantage in an age of increasingly information-hungry consumers.
For luxury goods sellers, where counterfeiting is a huge issue, being able to prove authenticity is key to building customer trust.
Customer reward schemes are expensive for retailers and have far too low participation from customers. Moving from a fragmented multitude of independent, centralized systems to a single decentralized system will provide a better customer experience, while for the providers of the schemes, it streamlines the exchange of information.
Recent analysis from Deloitte identifies a number of benefits of blockchain being used for loyalty schemes, as it explains: “A blockchain-based loyalty rewards program should reduce system management costs with smart contracts that report secure, tracked, transparent transactions to legacy systems, reducing costs associated with errors and fraud.”
Another double winner for both customers and retailers is the use of blockchain for warranties. Of course, no-one likes to have to hold on to old receipts or find old emails to prove that they’ve purchased something. Blockchain offers the possibility of consigning shoeboxes of old receipts to the bin by centralizing warranties in the cloud or by moving to ‘eWarranties.’
Warranteer is an example of a startup that has its origins in exactly this idea. It is speaking out for the rights of consumers saying that they should be able to easily access information and support for all products they purchase. In this application of blockchain, there’s peace of mind for the consumer; whereas, for retailers, there’s the added trust and loyalty that can be gained from supplying products that could offer this type of warranty.
We’ve already seen in the examples above that blockchain is likely to be a part of the whole of a product’s lifecycle, from the manufacture or production of a good right the way through to post-purchase. However, long-term ramifications could go further.
An article entitled “Can blockchains replace retail giants like Amazon and eBay?” in The Next Web gives some food for thought. It concludes: “By offering even the smaller players equal footing, in terms of trust, accessibility, and liquidity, a social marketplace offers to give value where it is due, thus phasing out the middleman in the process.”
So while it’s hard to build trust in the ‘wild west’ of today’s internet, blockchain offers the chance to fix that issue, in a way which could allow smaller players to benefit. For online retailers, this can only be a good thing – and the change could be fast. One prediction suggests that the technology could reach critical mass by 2020 and be widely accepted by consumers by around 2025.
Meanwhile, Research firm Aite Group predicts that investment in new blockchain-enabled financial technologies will more than quintuple over the next four years, from an estimated $75 million in 2015 to $400 million by 2019.
But what do you think? Is blockchain technology something that you’ve invested in, will invest in, or are you unconvinced?