Development of factoring by using blockchains

Abstract

The thesis’s objective was to describe ways on how to develop traditional factoring through private and consortium blockchains in Finnish factoring companies located in Finland. The research was carried out using a qualitative research method with an explorative outlook on the topic. The research was executed as an inductive case study. The research was constructed using a semi-structured interview method with a predetermined interview question set based on the topic’s title. Four professionals were interviewed from the finance and IT fields. Data-based content analysis and thematic design were used as the methods of data analysis. The systematic academic literature and use case review results were analyzed by using thematic design. According to the research results, consortiums and smart contracts are good solutions to develop traditional factoring. Consortiums could be executed as larger-scale solutions as large invoice financing marketplaces or as smaller-scale solutions between banks and their customers. The invoice marketplace could be executed through blockchain technology or by using more simple technologies. Smart contracts could be used to automate factoring agreements by using tokens to represent invoices’ value, but more research is needed on the contracts’ technical execution. Blockchain solutions are still partly underdeveloped and do not yet meet all the requirements of traditional factoring. Blockchain has some issues that need to be taken into consideration. Especially, security and privacy issues and capacity and block size limitations still need to be solved. It still needs to be examined whether suitable solutions for factoring companies’ needs to connect Distributed Ledger Technology systems to legacy systems to make payouts directly to customers’ bank accounts from smart contracts. Factoring companies need to examine Distributed Ledger Technology to understand its capabilities and consider the correct technology to integrate into their factoring solutions.