Industries Where Intermediaries Rule, and Blockchain’s Coming Coup

Middlemen are often necessary additions to a supply chain, multi-stage business flow, or cross-border process. Despite middlemen’s negative connotations, they exemplify their usefulness especially in areas like retail. Intermediaries are crucial for ensuring fast and quality service for suppliers and merchants on either end of the retail chain, such as an international fulfillment company that organizes the stream of goods between locations around the globe. They coordinate with the relevant parties to verify delivery at each point of the supply chain and provide some authority and accountability to an enormous and multifaceted industry that thrives on always being informed.

Though middlemen that can improve a process may deserve their slice of the pie, it’s cumbersome for any business to deal with multiple stakeholders. Even in the digital world middlemen thrive between content providers and customers and can find corners to cut. Despite its freedom and openness, consolidating power on the internet is possible for companies who create the most convenient applications and platforms, and it allows them to extract value from users as well.

Blockchain’s shared ledger and unifying capabilities are helping to create a new dawn for business models where intermediaries have overstayed their welcome. With blockchain, it’s all about establishing services around people rather than placing barriers between them. There are quite a few industries where this problem has come to a head, but where blockchain technology might also present the perfect remedy.

Paws Off My Payments

Cross-border money remittance and settlement is a vital concept for businesses that operate internationally, as it ensures that cash is speedily and accurately transferred between different banks around the world. For the supportive role that they play in propping up the world’s finance infrastructure, payment processors take fees that detract from the bottom line of all other stakeholders on the value chain. Businesses must factor these costs into their prices, and depending on how far money must be sent, fees can climb into the double digits percentage-wise.

The payment sector itself exists because it’s hard for different financial institutions to get aligned, but with blockchain, that problem is nonexistent. With a blockchain product like Ripple, banks can join a system whereby they share a faster, more secure settlement platform built on the decentralized ledger. This makes sending money between them a one-step process during which Bank A denominates a payment to Bank B in XRP, and it’s instantly sent to the appropriate blockchain wallet and recorded for public transparency. Such functionality effectively eliminates the need for payment processors and allows money to be sent more dependably. These kinds of systems will proliferate and disarm many of the financial sector’s peripheral service providers.

Hospitality is Being Hindered

The pseudo-savior position that middlemen sometimes play is highlighted in the hospitality industry especially, with the proliferation of online travel agents (OTAs). Companies like Kayak and Orbitz aggregate and organize the booking schedules of thousands of hotels around the globe and put a polished web interface on top of the process for customers. They can conveniently filter and find the rooms that are best suited to their upcoming trip, but few users are aware that they’re paying for this privilege. The convenience of OTAs and the unwillingness of customers to do their own leg work means they can safely charge fees at the expense of those providing and using the service itself.

Blockchain companies like GOeureka employ a shared ledger system to offer hotels a better deal. Any hotel can plug their inventory and even their loyalty rewards programs into the GO platform, which employs decentralized power to operate and therefore charges no commissions. Add on cryptocurrency settlement for customers booking with the new marketplace, and GOeureka effectively gives hotels all the benefits of an OTA without the lack of control. Smart contract functionality allows extra utilities like the ‘rebooking tool’, which reads the ledger and can automatically rebate customers if a cheaper booking is uncovered. With over 200,000 hotels on its blockchain platform, GOeureka is quickly gaining momentum on the parasitic OTAs of yesterday.

Freelancing Isn’t Free

Internet-based aggregation platforms don’t just consolidate physical space in hotels or apartments, like with AirBnB. They can also corral talented workers and install tolls between them and their clients, who they wouldn’t have linked up with if it hadn’t been for the website itself. This is how platforms like Freelancer.com and Upwork operate, and besides the generous fees they take as “digital business developers”, they also expose users to credit card processing costs. A freelancer who makes their living on one of these websites might have to factor in fees of up to 20% into their hourly rate or total project price. Once again, blockchain can realign the interests of the marketplace provider with its users on both sides of any transaction.

On decentralized platforms like Blocklancer, payments are settled on the ledger and don’t incur processing overheads. Plus, the platform charges lower, more equitable fees for its service, and throws in some cool smart-contract-based utility as well. While slow and unfair dispute arbitration is an issue on last-generation freelancer websites, all payments are held in escrow until work is completed per the contract’s preset terms. This reduces the margin for error in the freelancer relationship, but if problems slip by, the platform will source a ‘tribunal’ of arbitrators who will be reimbursed in tokens to resolve the dispute. The result is a leaner and more trustworthy way to do business remotely.

Rebuilding on Blockchain

The internet is an incomplete platform and is missing many of the tools that could have prevented the disproportionate presence of middlemen. Blockchain’s collective consensus mechanisms, ideas on identity, and storage of value with cryptocurrency are the internet’s missing puzzle pieces. They will be used to dethrone many of the businesses that hold value creators hostage, and those for which the only role is that of ‘necessary evil’. Many are reaching markets now, and the next year will be an exciting one as a new wave of blockchain platforms find a willing audience.

Writer Eran Halevy.