The Bankers’ Plumber on FinTech: Immutability

This week’s post is inspired by the taxman and the work of a Goldman Sachs alum. Even if the words inspiration and taxman are not words you expect to see in the same sentence, please read on, if only for your own inspiration.

Deming Bad Process

My consulting activity is run though my limited company. I am already registered with the tax authorities for my statutory filings. More recently I have registered for Swiss sales tax, the MWSt or Mehrwertsteuer. More forms of course.

Some three weeks ago, the nice people from MWSt sent me a note, by way of regular post, asking me to fill out my bank details. I was to return it by either fax or regular mail. No sign of an email address or even a web based self service. So having filled it out, I filled out an envelope, found a stamp and sent it off. I was slightly miffed at this, but realised it was necessary. I did not think to keep a copy,

Some two weeks ago, I received the same form again with the same request. I had no way of knowing whether the first was lost or in flight. So, taking the line of least resistance, I did the same routine all over again.

Each year, just over 40’000 new companies are founded in Switzerland. At the very least the main tax authorities are collecting some payments data and in most, though not all, cases, the other left hand of the federal government, the MWSt team, will be doing the same. With their current process, they have to prepare, send, track the response and store the data. Postage costs at least CHF 1. If I estimate that the fully loaded cost of the administrator is CHF 10k per month, then this is some 60 CHF per hour. Let’s say the whole process including the postage is CHF 10.

So, the main tax authorities spend is 40k companies x 10 CHF per instance: 400k on top of which the MWSt guys, who are in the same firm really, although I hear them all yodeling  “data protection” in full voice, will do the same for say 50% of all those companies. So that is maybe 600k of admin plus what each company had to spend to be administered.

Don’t forget too, that this is public money, yours and mine, so as New York cabbies used to say: “Costa da double”. So north of CHF 1 million in cost for this one little piece of what you could call in the collective KYC, Know Your Customer.

What does this have to do with a Goldman Sachs alum? Jon May is CEO of KYC.Com. Their mission is to simplify the whole client-to-bank KYC administration. The latest posting on their news feed explains what they are doing from a corporate’s perspective.

Of course, there is much more potential for Jon and his team to do a lot of good than there is with my little company and the minor aggravation I have with the tax folk. That said the root cause and the potential that the Blockchain has to help is the same.

Immutable data. That is a property of the Blockchain and one of the promises it makes. Even without the Blockchain, the smart folks over at KYC have huge benefits to offer. Simply put: “Corporates, give your data to us, once and we will then make sure it goes where it needs to go.” The Blockchain offers the ability to do this in a slightly more advance way, which will allow some self-service with the certainty that the person doing the update is the only person who should.

Domestically, in Switzerland, my company has an official company number, from Companies House. I guess I could get an LEI if I needed it. Companies House is one of the many left arms of the government. So, here is a nice 3 step domestic dance that would be a great thing:

Change the rules: Companies House (Handelsregisteramt) should be empowered to collect and share my data to authorised persons. Now the MWSt would be Authorised, or I could approve sharing data.

Create the tools: Companies House could then build an application, using the immutability of the Blockchain, to let my company self service its own data, including payment details. Now of course, people will worry about security, but I can assure you, the MWSt folks have zero insight as to where the form they had back recently was really from me.

Change the payments process: Adapt the payments process so that when anybody in Switzerland, be that the government or a company, wants to pay my company, all they need to know is my company number: Send CHF X to Company Y.

That’s it. Three small steps for progress, three giant ones for business. This is a domestic example. Cross-border is just a derivative. Making a success of that would need SWIFT, the LEI and a little bit of SWIFT sticking its neck out.

I have had this conversation with a source with some insight into the thinking on matters SSI’s. Like, it seems SWIFT, and possibly others, would like to collect and administrate, which is a good thing. On top of that, SWIFT and possibly others, apparently want to distribute, which is a terrible thing.

There is no need to send all that data around. It does not matter to the MWSt folk where my company banks; there is no good reason to collect, store and administrate that data. Same is true for any client. if SWIFT would simply accept cross-border messages and route them based on the immutable data, then the works would be a much better place. SWIFT itself could administer that SSI collection process or leave it to a third party. Just one though.

Lessons learned: A little thought about process will go a long way. The folks are doing good things for all.

We can all help them by acknowledging it is better that companies let them aggregate data and the rest of us use that central service.

We can all help ourselves by acknowledging that it is better if we can totally avoid distributing. It is enough for domestic Companies House to have my company payment details. It is enough for SWIFT to know all cross-border details. It is enough for to have details on file. For the  rest of us, al we need to do is to trust that if these utilities have the information, it is valid.

Thanks for your support.

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