Procure-to-Pay, in today’s supply chains, is a complicated and lengthy process for corporations and their suppliers across the world. Listen to Orapong Thien-Ngern, CEO of Digital Ventures a subsidiary of Siam Commercial Bank (SCB) in Thailand, as he talks to us about how blockchain technology has reduced procure-to-pay process time by 50% and costs by 70%

We had the pleasure of also being joined by Sharon Yuen, Head of ASEAN sales at R3 who manages the relationship with Digital Ventures.

What is blockchain?

For Sharon, blockchain is a technology that creates a decentralised records of all transactions in the network. Using blockchain technology, participants in the network can confirm transactions independently of a third party intermediary. There's no need for a central trust authority or a central server. From payments and audits to tracking inventory and assets, blockchain technology in supply chain can deliver a new level of trust and transparency, while enabling the procure to pay process to realise huge operational benefits.

For Orapong, whilst blockchain is a distributed ledger it is more than just technology. It’s a new way of thinking or looking at the world. What we believe is the world is going distributed. If we look at the world today things are quite centralised. You go to a bank for your money. You go to a telco if you want to use the telephone. You go to the hospital if you want to see a doctor. Each of those entity keep your record.

Orapong believes that with distributed ledger technology (DLT), all these information records will be distributed in the near future and people own their own digital records. This will fundamentally change the business model of not just banks but all kinds of businesses. Businesses in the future will rely very heavily on data. Once the data becomes truly distributed banks won’t be functioning in the same manner as they are today. Nor will tecos. Core banking infrastructure will change as will billing systems and we’re just at the beginning of this change. Because of all these reasons, SCB is very interested in blockchain and DLT.

 

Siam Commercial Bank (SCB) and Digital Ventures

SCB was established 140 years ago. It’s the first bank in Thailand. In terms of net profit and net assets, SCB is the number one bank in Thailand. But as in the rest of the banking industry, not just in Thailand, the industry is facing some serious challenges. Return on equity five years ago in Thailand was about 22%, now it’s about 9.8%. Price to book ratio used to be 2.2, now it is 0.98. SCB isn’t alone in facing those challenges, the whole industry is facing them. European banks in Europe have a return on equity of 7.4% with a price to book ratio of 0.58, which means it is significantly discounted on book value.

If you plot those two trends, of return on equity and of price to book ratio, Orapong believes that the banking industry is a “sunsetting industry”.

Siam Commercial Bank is very alert of these trends. SCB believes that traditional banking has to evolve as the present market dynamics are very stagnant. For example last year, SCB created what they believed to be the leading mobile application for banking. To introduce its launch and to gain market share they announced zero banking fees. Within half an hour all the other competing banks matched their offer. Ultimately no one gained anything because everyone is willing to do whatever it takes to protect their market share.