FOCUS: M.Video, Sberbank, Alfa-Bank team up to use blockchain in factoring

By Yekaterina Yezhova

MOSCOW, Oct 23 (PRIME) -- Large Russian electronics retailer M.Video is moving ahead of the curve with Sberbank Factoring, a unit of Sberbank, and Alfa-Bank with the use of launch of blockchain, a famous distributed database technology in the financial industry, in factoring. Analysts said the partners, whose investment is seen at 100–200 million rubles, will sell the solution to other firms.

“Factoring is one of those directions where blockchain could cut costs in view of tens of thousands of documents a day, which are handled by people, and a human being is a very ineffective tool to check figures and fill in monotonous forms. The innovation will be applied to the market worth 2 trillion rubles and could save 200 million rubles per year in total for its users,” Finam analyst Leonid Delitsyn told PRIME.

M.Video’s Financial Director Yekaterina Sokolova said in a statement on October 13, when the consortium was made public, that an annual turnover of factoring operations between M.Video and its suppliers amounts to billions of rubles and tens of thousands of waybills earlier processed by hand, e-mail, phone, and paper documents. Blockchain automatized checking of shipping documents and helps avoid the risk of confidentiality leaks and fraud, reduce operating costs, speed up and facilitate factoring payments.

“Blockchain technologies are available and easy to integrate, which is good for our suppliers. Every fifth M.Video partner uses blockchain for factoring. We plan to engage the bulk of banks-factors to the blockchain platform gradually this year,” she said then.

The companies launched an open blockchain platform for factoring operations, which can be joined by an unlimited number of banks and factoring companies with all information on deals kept confidential. Factoring is a financial transaction and a type of debtor financing in which a business sells its accounts receivable, invoices, to a third party, called a factor, at a discount.

Blockchain cuts the time of verification of deliveries to several seconds from one or two days thanks to smart-contracts, or computer algorithms, checking delivery information online. A supplier’s dispatching data are uploaded into the system by a bank or a factor, encoded, and automatically compared to a retailer’s data on receipt of the goods. Coincidence of data chain on a transaction operation serves as a basis to confirm and finance the delivery.

“Blockchain can trace all the chain of transactions from the beginning up to the end. There is no need to invest in storage facilities, because every participant has a local base for all operations at every moment,” M.Video spokeswoman Valeria Andreyeva told PRIME.

The platform is based on Ethereum smart-contracts. “The factoring blockchain platform has nothing to do with payments; it’s a means of registration of information on commodity-money transactions between participants of a factoring deal,” Andreyeva said. “The platform is a public network, consisting of servers installed by every participant in its network. New servers can be added anytime to the network, which means that the platform can be joined by new companies.”

The blockchain-based confirmation of payments requires several hundreds of thousands of rubles, or several times less than traditional formats of IT integration, from every participant to allocate servers and adjust IT solutions, the M.Video spokeswoman said.

Delitsyn estimated the partners’ contributions to the idea at 100–200 million rubles.

“M.Video is holding negotiations with a number of banks, with which it already works on factoring operations, like VTB Bank and Promsvyazbank. Expenses on development and maintenance of the platform’s algorithms will be shared between the project’s participants and later discussed with new members,” Andreyeva said.

Delitsyn said the consortium’s founders will try to sell the ready-made decision to other members and companies, which will save money thanks to an automated document turnover.

“The consortium looks like a means to sell a useful blockchain-based tool. The founders invested money in the idea that could be in demand by hundreds of banks, electronics sellers and retailers,” he told PRIME.

The fact that the law does not still have a clear view on blockchain will not stop the consortium from signing their documents electronically, but it could become a problem later, if its members start suing each other, although it seems unlikely in view of automatization, similar and small deals.

“Novelty of the technology and a weak penetration constitute an obstacle for blockchain. Potential users want others, like market leaders or large companies, to test it first, while imitation pandemic will break out later,” Delitsyn said.

(57.5118 rubles – U.S. $1)

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