Read views of Infosys experts on how blockchain technology offers an unprecedented opportunity to transform the transactions of the future, how its adoption will create newer value propositions and what is required for its integration into larger IT systems.

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January 24, 2017

Lease with confidence

One of my friends, who runs a small manufacturing unit, was in need of gensets for his plant. Owning a small and medium scale enterprise, he said that he cannot afford to buy the costly ones and was planning to take them on lease. However, he expressed that while it made sense to lease in theory, he was worried about some practical aspects. 

He articulated his worries as follows:

1.How can he be sure that the leased gensets are genuine and licensed to work per state electricity norms? There could be a possibility that the person who leases may provide sub-standard assets with duplicate certificates for business benefits.

2.What is the guarantee that the leased gensets were serviced at regular intervals before signing the lease? This is very important because if it was not done, then he runs a high risk of having to repair these gensets and that could bring production to halt. 

As a result, we visited a lessor firm to enquire about his concerns. At the firm, an executive's response to our queries was cliché -- "Sir, we maintain comprehensive data about each asset." This was not a very satisfactory response as the firm could tamper with data to project ideal details to their potential customers. We also felt that the pricing was high and arbitrary. The executive tried to convince us on the pricing by stating the following two factors:

1.High-costs are incurred in maintaining printed copies of leasing contracts between multiple parties, manually tracking lease payments, and recovering assets if the lessee does not pay on time

2.The cost of the lease also took into account potential non-adherence to geographic and operational limits of usage of an asset, as agreed in the leasing contract. The amount would counter the risk of the asset getting permanently damaged and prevent high losses to the firm

During the course of the discussion, I realized that the leasing business seems to be constrained by lack of trust and automation, resulting in inefficiencies and uncertainties. And, these are the core issues that blockchain technology tries to solve. I started explaining. Let's say asset manufacturer, leasing firms, asset servicing firms, insurers, and customer organizations become part of a blockchain network. 

1.They record every aspect of the asset on blockchain as follows:

a.Manufacture: Manufacturing date, location, quality specifications, etc.
b.Leasing firm: Lease duration, payments, contract condition, etc.
c.Insurance: Insurance conditions, premium, etc.
d.Servicing firm: Servicing date, details of repairs, etc.

2.Counterfeiting or fraud can be reduced, since all blockchain transactions can be done with cryptographic keys to which only respective parties have access. This will lead to greater trust between lessor and lessee.

3.Smart contracts can automate some of the tasks such as tracking of lease payments, digitizing, and transparent contracts. This would reduce some of the manual overhead costs and delays.

4.More automation can be achieved through IoT sensors and digital keys. If the equipment is configured with the owner's private digital keys and the leasing firm transfers digital keys to the lessee on blockchain, then only the lessee with those keys will be able to operate this equipment. This would prevent non-authorized actors from running the equipment and the lessor can keep track of equipment usage.

When I completed my explanation, they both agreed that this certainly sounds like good news to both lessee and lessor and they can't wait to see it become a reality. What do you think?


January 13, 2017

Rx on the Block

Product Security has always been a prime concern in pharmaceutical industry. Pharma products are susceptible to vulnerabilities throughout the different phases on drug supply chain. Right from fake raw materials entering the supply chain to fake drugs with same ingredients but different dosages being dispensed to customers, there are lot of loopholes in the entire journey for counterfeit medicines.

Drug Quality and Security Act (DQSA) is an important law signed by the US in 2013 that aims to establish electronic serialization and traceability system. Drug serialization is the process of assigning and applying unique product identifier to the smallest sale able unit of drug and further extending it to case and pallet level serialization. "Track" is a process to understand the current and past location of the serialized item and "Trace" is to understand the history of parties that came in contact with the component along the supply chain.

There are a lot of pharmaceutical serialization and track and trace vendors who provide end-to-end solutions right from the required hardware to generate a unique code (barcode or RFID) and required software and ePedigree requirement to trace the journey of the drug throughout the supply chain. However, current electronic serialization and tracing systems cannot be easily adopted to the changing regulations and rules around drug serialization. Moreover, it does not provide a foolproof mechanism to track stolen merchandise and re-entrance of dispensed drug resold to the distributor.

Innovators around different industries have been looking into blockchain technology to bring in transparency in supply chain. The pilot project from Provenance team in Indonesia's tuna fish industry to track the fish supply chain were successful to an extent where even the fisherman who caught the fish could be tracked. But when we try to draw parallels - between Provenance's tuna fish supply chain example and pharma supply chain there are certain challenges of the pharmaceutical industry that need to be accounted for.

Pharma supply chain has a series of aggregation and segregation processes. Unit level drug item is aggregated to cases and cases are aggregated to pallets (parent child relationship) during packaging and drug products are serialized at all these different levels. Once the drug is delivered to a wholesaler, the subsequent flow results in segregation of the pallets to cases and then to unit level drug that is finally delivered to end customer. Track and trace mechanism should be capable of tracing the drug product throughout the aggregation and segregation process. There is no easy tracking mechanism when pallet level serialization is split to unit level or item level serialization. The process results in explosion of compliance data.

Further, current process and available solutions cannot be easily adapted to changing regulations and results in lot of re-work and re-configuration every time a new regulation is rolled out. Serialization solutions have long implementation cycles inducing delays. Processes to ensure compliance create further bottlenecks in the physical supply chain making it difficult to ensure supply. The operations are distributed in nature leading to increased operational and maintenance cost.

Blockchain could potentially help address many of these challenges. Pilots done in diamond, art and fishing industries using blockchain demonstrate the possibility of addressing several inherent supply chain challenges. Certain blockchain features like private keys and smart contracts help build proof of ownership of drug source at any point in the supply chain and manage the contracts between different parties. Data shared across distributed ledger enables better control and visibility of information flow throughout the supply chain. Exploring a way to track the physical movement of drug digitally over blockchain will make it easier to identify counterfeit drugs and illegal raw materials entering the supply chain. Using inherent features of the blockchain to address the aggregation and segregation challenge is also being explored. By providing suitable mechanisms to integrate the serialization hardware from trace and track vendors with the blockchain application, there is a huge scope to build a system to ensure better visibility, traceability and control in the pharma supply chain.

January 10, 2017

Blockchain-as-a-Service (BaaS): Plug and play of blockchain solutions

- By Durga Prasad Balmuri and Kuljit Singh

In the recent past, Platform-as-a-service (PaaS) providers have expanded their blockchain capabilities to offer them as part of their cloud offerings. This as-a-Service offering is now known as Blockchain-as-a- Service (BaaS). If blockchain is in vogue, BaaS is the hottest trend in the blockchain ecosystem.

Large companies such as Microsoft, IBM, Deloitte, Amazon, and such are moving towards extreme agility in the blockchain space by building their own capabilities as well as collaborating with startups and system integrators to make their respective platforms' infrastructure compatible with the use of blockchain. These capabilities are needed at the backend for the smooth functioning of blockchain. Since the entire blockchain ecosystem is a convoluted labyrinth, plagued by infrastructure and developmental challenges in integrating functions and components, building blockchain solutions is not a very easy endeavor to follow. With BaaS, the journey may be smoother, practical, and also more profitable.

Banks have not only been interested in blockchain solutions, but have been exploring ways to incorporate them in the best ways possible. They can partner with a PaaS provider by simply subscribing to one or more of their BaaS packages in a matter of few minutes and start testing the value from each offering. The main benefits which banks would wish to avail with the use of BaaS are agility, reduced risks, better operational efficiency, and higher speeds in areas such as payments, loyalty, loans, asset management, and more.

Recently, Microsoft and Bank of America (BofA) have announced a collaboration to transform trade finance transactions with the use of Microsoft's Azure BaaS. Through this, trade finance processes can be digitized and automated, and also have shortened settlement times. This will result in more predictable working capital requirements, reduced counterparty risk, better transparency, and much more.

The path to success is never easy, and the situation here is no exception due to problems of fragmentation and interoperability between various BaaS solutions. With these challenges come the opportunities to overcome them and make the system more robust. It is said that the only impossible journey is one that you never begin. In this case, the journey has started. 

January 5, 2017

Specialized testing requirements for the Blockchain

 Author: Swati Sucharita, Senior Project Manager

Blockchain technology is set to bring breakthrough changes in the way businesses are conducted today through its promise of secure, immutable, peer-to-peer decentralized trust networks with distributed consensus, shared, distributed ledger and smart contracts.

These very features bring in a host of additional dimensions to blockchain based applications and present greater challenges in their testing. Not only is the technology change significant, but also significant are changes from a business process standpoint. While blockchain applications will require all the standard testing and validation - such as functional testing, integration testing, security testing and performance testing, they will also require additional specialized testing capabilities.

Smart Contract testing

Smart Contracts are software modules on the blockchain that automatically execute transactions based on pre-defined conditions and business logic. Testing smart contracts involves simulation of all possible expected and unexpected conditions for every contract, testing all combinations of business logic and the proper triggering and correct execution of transactions. And all of these in the context of a dynamically changing and expanding network. Given the sheer number of nodes and combinations that are likely, automation of testing becomes an important need.

Peer/Node testing

The strength of the blockchain lies in having the shared ledger be exactly the same at each and every node, with the same set and sequence of transactions. This is achieved through consensus across all nodes on the order in which transactions are added to the network. Testing for consistency of transactions involves testing the consensus protocol to ensure transactions are stored in the proper sequence under normal conditions as well as in cases where nodes fail concurrently or enough nodes do not participate in the network for a period of time. One way to test this would be by simulating Byzantine nodes. Resiliency also needs to be tested by validating the ledger after nodes that restarted or rejoined the network sync with other validating peers

Non functional testing

The blockchain network needs to be tested for performance and latency which would vary based on the size of the network, expected size of transactions, the consensus protocol used and the latencies that it might necessitate. It is also important to measure if integrity of the network and the shared ledger is maintained while testing throughput. Testing for security on the network and privacy of data in the ledger based on selective permissions is also required

As the blockchain catches on and more industries move to explore the opportunities it opens up, on-the -ground implementations pose new challenges and create new opportunities for the testing and validation community.

January 4, 2017

Blockchain Smart Contracts in Insurance


The London Fintech Week Blockchain Hackathon event that was held in September 2015 has caught the insurance industry attention. Team InsurETH picked up the flight travel insurance challenge and built a successful flight travel insurance product on Ethereum blockchain platform. InsurETH found that in 12 months i.e. from June 2014 to May 2015, 558,000 (62%) passengers did not claim their travel insurance for delayed flights in and out of the UK. The numbers are surprising. May be, filing a claim with all the information and evidences could be cumbersome process for some customers. So, the solution developed by InsurETH to this challenge, is a simple smart contract enabled claim process on a blockchain platform. The smart contract solution automates claim pay out instantaneously to the affected passengers based on the flight data feeds. That was well received and the team won first prize. So, it is interesting to see the impact that Smart Contract is making in the Claim process. It cuts away the claim notification step by the insured and processes claim automatically by verifying facts from external parties resulting in closing the claims quicker, bringing down the cost of processing claim and achieving higher customer satisfaction.  Well, this sounds like cool concept. So what is Smart Contract? 


What is Smart Contract?

Smart Contract is essentially, a piece of programmable code that records the terms of the contract on blockchain shared between all participants. These contracts are capable of automatically executing itself upon the occurrence of pre-defined conditions on a blockchain. Although this result can be achieved without blockchain technology, leveraging blockchain technology offers exceptional benefits. The degree of transparency is high, approval of the transaction happens on consensus of the participants, transactions are immutable and secured by cryptography. It is extremely difficult to hack the system in a distributed network that follows consensus based approvals to record transactions. So these kind of technology features open up many possibilities in insurance industry. It can lead to innovation of new products and automation of many manual processes that are carried out today.


Exploring Blockchain smart contracts in Insurance.   

Smart contracts can be considered provided that- conditions to execute contracts are clear and obvious. Claim payments can be automated if the conditions are clear and obvious to validate the claim incident. Another example in the industry is a successful blockchain Smart contract pilot run by Allianz from Germany with the investing Partner Nephelia to handle Catastrophe Swaps and Bonds. The catastrophe Swaps and Bonds are tradable financial instruments that insurer uses to protect against major catastrophe losses. Based on catastrophe triggering events like hurricanes or typhoons, payout can be initiated between Insurer and Investor. Blockchain smart contract makes payment settlements happen in hours after the catastrophic event. Today, it takes weeks and months to settle such payment transactions after the catastrophe event.

So the blockchain technology can transform the way the claim process is handled by insurers today. The turn around time to process straight forward claims will significantly reduce. The transparent smart contract conditions brings clarity and reduce legal interferences that saves time and money for insurers. As the claim events are recorded in the distributed ledger, duplicate claim reporting can be prevented and fraud attempts can be minimized. Multiple parties can have access to single source of truth there by reducing exchange of many documents and making it digital. All in all, Blockchain technology can maximize the efficiency of claim processes. The areas where Smart contract can be exercised are mentioned below.

Term Insurance - Claims

Term Life Insurance Smart Contract can be created between the insured and Insurer, which will pay death benefits to the beneficiary upon the death of the policy holder. Smart Contract can be connected to the death registries. On receiving a notification of a person's death, Smart Contract can automatically verify the person is covered, then initiate and settle the claim payment to the beneficiary. Generally, dependents or beneficiaries are not aware, if the person who passed away had insurance and hence do not file a claim, or file late.  In this scenario, Smart Contract eliminates the need for claim submission request notification as the contract automatically process and settles payment on receiving notification from death registry.

Micro insurance - Claims

Insurer will be happy to cut down administrative cost that are incurred in handling micro insurance claims like in farm insurance. So weather triggering events like flood, heavy rainfall or drought can be used to address claims in micro insurance. Automation would also help insurers to save claim administration cost. This in turn would lead to bring down the premium and make insurance affordable for the farmers.

Reinsurance recoveries

Smart contracts can be extended to back office transactions that takes place between insurers and reinsurers. Usually after a claim is settled, insurer verifies for any reinsurance contracts and works with reinsurers for reinsurance recovery. A smart contract can be placed on a Blockchain platform to initiate recovery transaction as soon as the claim is settled.

So the application of Smart contract is wide and not limited to the use cases that are discussed above, as smart contract offers automation, security and transparency among the participants. 

Conclusion:

Blockchain is a promising technology with some great features. Many leaders in the insurance industry are testing the blockchain in various business processes using smart contracts. As the technology evolves and gains momentum, it can be a great opportunity for insurers to derive new business value, improve customer service, minimize administration cost and fraud.



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