Digital Rupee(CBDC) will be the currency between suppliers and channel partners (B2B).

India announces that the digital rupee (CBDC) will most likely be issued in 2022-2023. CBDC (Central Bank Digital Currency) refers to the virtual form of a fiat currency. A CBDC or Digital rupee is a digital currency or digital token of India's official currency, issued by the central bank RBI.

CDBC would enable both consumers and businesses to use the digital rupee when making payments for any transactions. CBDC will serve as a settlement medium for any transaction. In India, UPI became the biggest influencer in the first phase of the digitisation of payments. The decline in the use of cash and the popularity of other digital currencies like Bitcoin, Ethereum has prompted the Indian government to consider the issuance of a retail CBDC to give the digital currency a transactional value. Current digital currencies do not carry any transactional value, except being treated as virtual digital assets.

Current transaction options between suppliers and channel partners.

Today manufacturers, importers and large distribution businesses who reach out to their customers through channel partners like distributors, dealers, retails or franchisees do have a couple of traditional methods to safeguard their payments.?

When a manufacturer is large enough to dictate the terms, it does not offer any credit to its primary channels. But in turn, the primary channel is expected to extend a large credit on a no-surety model to the secondary channels. In all such cases, the primary channel partners are not safe-guarded on the credit that they extend.?

When a manufacturer or an importer is not a dominant player in their segment, then they are compelled to extend credit to their primary channel distribution. Usually, companies take some form of safeguard through traditional banking instruments like signed cheques or bank guarantees in advance and encash them on an agreed basis. Some businesses conduct transactions without any security measures, due to the competitive environment. In all these cases, the risk of losing money and chasing a defaulted customer is much higher.?

Smart contracts and CBDC between suppliers and channel partners.

Now imagine what could happen from now onwards between manufacturers and their distribution channels. With the help of CBDT enabled smart contracts, suppliers and their channel partners can set on-the-fly criteria on their transactions, with no risk of the other party backing out.?

Currently, the bulk of transactions value between suppliers and channel partners are conducted through banks in the form of cheques, transfers, standing orders, debit and credit cards and UPI. In all such payment modes, additional costs are incurred by the payee or the receiver.?

Smart contract in B2B focuses specifically on contractual transactions between businesses. The transaction of smart contract CBDCs is associated between suppliers and their channel partners at par with the cash transaction. While the payment is still contractual and conditional, smart contracts would offer the option for channel partners to make their payment outside the banking process, just like payment made in cash which requires no bank.?

A smart-contract based CBDC is a ledger-based system that enables payments only after the terms of the contract are fulfilled. So the payment transfer won't occur if the conditions are not satisfied. This would reduce the risk that is inherent in traditional banking instruments’ clearance and offer an instant settlement. CBDT simplifies the complexities & costs associated with existing systems and inefficient processes. It allows for the movement of funds quickly and securely, with real-time visibility into payment status between suppliers and their channel partners. This provides necessary reconciliation and compliance data, instantly helping to improve the cash flow of both parties.?

Post sale payment credit

One of the biggest challenges for manufacturers and suppliers today is the visibility on whether a material supplied to the distribution channel has been sold to the next level or not. For example, when a product is sold to a distributor, whether the distributor managed to sell the same to a retailer or not, is not visible to most manufacturers. The same is the case between retailers and consumers. Hence, the credit system is not based on sales but rather on a period from the date of purchase. Whether a product is sold out or not, the buying party needs to pay off the supplier. In addition, there are transactional overburden and logistics issues on returning unsold items to the manufacturers, especially in the FMCG & Pharma industry.?

With the help of tokenised CBDC, suppliers can introduce a post-sale payment credit system, if not on all products then on a few slow-moving products. Products that are placed at different distribution points could be made available on a credit system based on the after-sale payment model. This way, the distribution network and retail outlets may willingly stock materials for the suppliers as it does not need to be paid at the time of delivery, but only when it is sold. When the material is sold, suppliers can get their payment instantly, minus the profit that the other party gains. This can be executed even if a bill carries multiple products from multiple suppliers. Payments can be distributed among multiple suppliers, despite receiving one single payment against the invoice from the customer.

Bill-Discounting?

Another great opportunity for businesses is discounting the invoices given on credit. Financial institutions through Digital payments can discount the invoices without worrying about the payments. When an invoice is accepted by the channel partner, the smart contract is confirmed. Thus the payment from the channel partner through CBDC is paid to the discounting financial institution and is not available for any other use by the discounted business.

Funding on purchase orders

Manufacturers and importers do have working capital requirements, that many times may not be secured due to a lack of security instruments that the financial institutions may insist on. With tokenised CBDC, manufacturers can secure working capital against the purchase order issued by their channel partners or customers. As and when the material is delivered by the supplier, the payment is directed through CBDC to the financing institution, minus the profits of the supplier. This may even be including the interests that were agreed upon.?

Formal Economy

The shift to CBDT can also introduce a shift from an informal economy to a formal economy that is so prevalent in the distribution network today. As a result, the economy could focus more on efficiency, tax and transparency.?

We may expect more innovations in the B2B sector once the CBDC is launched. We at Foop are structurally prepared to enable smart-contract based CBDC transactions between suppliers and their channel partners.