How will blockchain technology impact employee benefits?

blockchain

Need to know

Blockchain technology allows transactions to be exchanged securely and transparently within peer-to-peer networks, and can automate a range of processes.
It could streamline areas such as recording education, skills and performance, cross-border payments, VAT administration, payroll, pensions, and private medical insurance.
However, it is still in its infancy within HR and benefits, and there are questions about what it might mean for future roles and jobs.

When it comes to understanding blockchain technology and the potential effect it could have on the delivery and management of employee benefits, the industry is some way off of getting to grips with this emerging technology.

The consensus appears to be that people are aware of blockchain, are aware it could ‘somehow’ be transformational but, as yet, have not quite got their heads around how or where. George Zarkadakis, digital leader at Willis Towers Watson, says: “The technology is already available today, and people are using it. But benefits professionals have not really embraced it yet.”

So, what is blockchain technology? And how might it change employee benefits? Blockchain is best known as the technology that helps to power the Bitcoin digital currency, but its potential application goes much further than that. PWC defined it in its report, How blockchain technology could impact HR and the world of work, published in July 2017, as 'a distributed ledger that allows value to be exchanged securely, transparently and without risk of tampering'.

Perhaps the best way to visualise blockchain technology is as blocks of data whirling around within a peer-to-peer network. Someone within the network requests a transaction, this is then validated, normally by computers or ‘nodes’. Once validated, the transaction is combined with others to create a ‘block’ of data. This is then added to the existing data ‘chain’, at which point it becomes permanent and unalterable, so providing an irrefutable record, and the transaction is completed.

Blockchain and benefitsSo, how could this change benefits? In its report, PWC forecast that it could allow for more seamless and automated ways to check, verify and record education, skills and performance. It could help to manage cross-border payments more efficiently, to automate data-heavy processes such as VAT administration or payroll, and to enhance security in transactions with employees or contractors.

It could also transform how employees are paid by allowing them to 'punch in' to work using an app, from which point money is paid into their account in a continuous stream rather tham having to wait weeks for a pay cheque, says Euros Evans, founder of the Etch payroll platform.

“[This means employees] could buy stuff at lunchtime with money [they’ve] earned that morning," he explains. "Or [they] could send money home in real time. This is going to allow us to rethink how we visualise wages.”

‘Smart’ contracts, for example, for a private medical insurance plan, are likely to be a key component of blockchain technology, says Zarkadakis. "Through blockchain, the smart contract can be shared between [the employer], the healthcare provider or hospital, the insurer, the pharmacist and so on," he explains. "[They] do not have to have emails or documents going back and forth; it is all automated. It can happen much more quickly and with much lower transaction costs. There is also more transparency because everyone knows what is happening.”

Pensions could also benefit, for example in speeding up allocation and settlement processes, reducing costs and increasing transparency, says Martin Bartlam, a partner at law firm DLA Piper.

Group risk schemes could be another area to benefit from more seamless, automated transactional processes, says Katharine Moxham, spokesperson at industry body Group Risk Development (Grid). However, any transition to blockchain is unlikely to happen overnight. “I can see huge application for it, but whether there is the appetite is another matter," she says. "Data, and the provision of timely, accurate data is key; it is always crucial. I think it will be a waiting game, and some banks are already using it.

“With group risk particularly, the interface with legacy insurance systems could be an obstacle. It is potentially a big investment to make for everybody, for all parties. So, we would need to be sure clients are receptive to it”

Finally, if there is going to be less need for human verification, could this put HR and benefits jobs at risk? “To a certain extent, yes, it might in time mean more automation and less manual processing," says Bartlam. "From that perspective, it could be a bit scary. But all technology tends to generate opportunities for people to get involved rather than reducing them. It may reduce the number of people doing manual processing, but mean more people doing things within the new technology, or freeing people to do more valuable work."

The technology could transform the employee benefits market, but the industry has yet to embrace it. However, that could all change in the near future. As Bartlam says: “Three or four years ago, people had probably not heard of [blockchain]. A year ago, they might have heard of it but not necessarily believed it would impact them. Now, increasingly, they have heard of it and realise it will impact them. It is bit like the computer replacing the typewriter; it is just something that people will have to get to grips with.”

Infographic: What respondents look for in benefits technology