Blockchain – the future of payroll payments
25 September 2018
This article was featured in the October 2018 issue of the magazine.
Julie Lock, innovation director for Mitrefinch Ltd, sets out everything payroll professionals need to know
Currently most employers in the UK pay wages via BACS. Here’s how that process works: After payroll is calculated and validated, a bank file containing all payments is created and sent to the bank. The bank processes this file and takes money out of the employer’s bank account to deposit it in the accounts of the employees.
It can take several days to move money from one account to another. In other countries, employees receive cheques, which they deposit at the bank to receive their wages. In both cases the bank is used to move the money from employer to employee.
The bank stores information about each account in a database on its own servers and for this service charges both parties who have no way of checking the validity or security of the underlying databases. They must trust the bank to ensure correctness and protection against errors and fraud.
Removing the bank from the process whilst ensuring that the authenticity of each transaction is securely captured and validated is what blockchain does as well as enabling cryptocurrencies like bitcoin. It builds a secure ledger across a decentralised infrastructure called distributed ledger technology. When someone makes a transaction, it is broadcast to all parties in the network who then validate and approve it.
...payroll tech is in research and development, so the day will come soon where blockchain is introduced to the payroll industry
The data is encrypted and anonymous to those who aren’t directly involved in the transaction. Once the transaction is complete, a new block is created and added to the existing chain of transaction records, hence the name blockchain.
The signature of previous blocks is added to the current block and then encrypted, and the blocks can’t be changed or tampered with. The chain provides a permanent and transparent ledger, ensuring that the historical record of data becomes unchangeable. The distributed ledger guarantees the security of this technology.
When data changes, all parties receive a copy of the data, so each member is essential in establishing the integrity of every transaction.
There is no centralised version, and if an intruder wants to break into that system, they must break into all the same blocks on all parties at the exact same time, which is virtually impossible.
Blockchain offers a quicker, secure and transparent way of moving money from employer to employees. Employers won’t need to use banks and will benefit from cheaper transaction costs. Employees will be able to redirect payments and share wages earned with overseas family quicker and cheaper than they can do today through the banks.
A further benefit is that blockchain allows payment to people who don’t have a bank account. These individuals would have an opportunity to create a digital bio-identification straight from their smartphones and use that to access a digital wallet platform and accept payments.
Blockchain won’t directly affect the payroll profession today, but it certainly will make an impact soon as it offers a quick, safe, secure and transparent way of moving money around without the need to involve banks, reducing fees and loss of interest payments. It also enables payments to overseas workers easy.
Some payroll software organisations are already developing and testing the use of blockchain for payroll transactions. The benefits to employers of using blockchain are tangible; payroll tech is in research and development, so the day will come soon where blockchain is introduced to the payroll industry.
The bitcoin blockchain
The bitcoin blockchain file size, containing records of all transactions that have occurred on the network, has continually grown since its implementation in 2009. In August 2014, the blockchain reached 20 gigabytes (GB); in January 2015, the size had grown to almost 30 GB; and between January 2016 and January 2017, the bitcoin blockchain grew from 50 GB to 100 GB in size. (Source: Wikipedia)
Gartner Inc: information, analyses and reports about blockchain: see https://gtnr.it/2oPsfV6.
Wikipedia: history, definitions, structure, types, uses, source references: see https://bit.ly/2oeuQpZ.