An Introduction Guide to DeFi

Mar 29, 2023 by Zazil Martinez

Decentralized Finance (DeFi) is a new financial system based on blockchain technology and allows for financial transactions without intermediaries like banks. While DeFi is still in its early stages, it has the potential to transform the traditional financial system and create a more inclusive and accessible financial future.

Decentralized finance (DeFi) payments are on the rise.


Over the past years, spending on blockchain infrastructure increased 7x, going from $1 billion in 2018 to $6.6 billion in 2021. And this investment into the DeFi growth projects to reach over $19 billion by 2024.

There are many applications for DeFi. Accelerating and securing payments is one of the top use cases. But is integrating DeFi into your business right for you?

Before discussing the benefits, let's define what DeFi is and what it means for AR professionals.


What is Decentralized Finance (DeFi)?

Decentralized finance uses open-source technology to reduce financial institutions' and banks' control over transactions. DeFi payments eliminate costly processing fees by reducing intermediaries. This leaves the power in merchants' and buyers' hands. As a result, DeFi payments are faster: you can receive and reconcile your money in minutes instead of waiting days to settle a single transaction.

Crypto users rely on blockchain for decentralized finance, but DeFi is not only for cryptocurrency transactions. DeFi technology can receive and verify payments in any currency, not just crypto.

Also, automating other manual payment process tasks is possible by combining the Ethereum blockchain structure, which uses smart contracts.


How Can DeFi Improve my Payment Process?


Consider, for a moment, how credit cards work:

  1. You charge a customer.
  2. The charge transfers to the issuing bank.
  3. Then passes it on to the credit card network.
  4. The network requests the payment from the bank.
  5. Once approved, the funds get transferred to your business account.
  6. This entire back-and-forth is charged to you as a credit card processing fee.

A DeFi application provides a platform to reduce this exchange. But that isn't the only benefit. DeFi technology can also:

  • Increase security. Decentralized finance hinges on spreading data across different servers through the blockchain network, making hacking difficult. A DeFi payment platform provides an extra protection layer.
  • Speed up settlements. Payments completed through DeFi platforms are faster than traditional methods. Transactions can be settled in hours, or even minutes, freeing up cash flow bottlenecks.
  • Clear records. Every transaction is automatically logged and preserved in a "block." These blocks cannot be changed, making editing impossible once a transaction is completed. Another transaction can occur, such as a refund, in case of a mistake. This structure lends itself to compliance and makes managing a clear audit trail easier.
  • Scale your business. Another benefit of the blockchain network as an essential DeFi technology is its ability to scale. Since every transaction executes automatically without needing third parties, the payments platform can scale alongside business growth without penalizations for development.

What does DeFi Look Like for B2B Payments?

A fully encrypted and permissionless infrastructure allows performing near-instantaneous transactions without a bank or financial institution acting as an intermediary and taking a part of your revenue in processing fees. Utilizing DeFi increases cash flow by decreasing risk, hassle, costs, and time-to-cash.

DeFi allows organizations to leverage secure, scalable, and automatic payments with their current ERP infrastructure. This means a low learning curve for AR professionals and a streamlined workflow.

Think Venmo, but for B2B payments. And that's what DeFi can look like for your AR department.


How Can Finance Departments Use DeFi?

For years, DeFi has applied mainly to B2C transactions. Investors or individuals would load up their crypto wallets and hope for an extreme increase in asset value. And while decentralized ledgers have been around since the 1980s for some B2B projects, DeFi only took off years later.

The DeFi market in 2019 was about $1 billion. By 2021, this value rocketed to $80 billion. More organizations recognize the importance of B2B DeFi, especially regarding transactions and payments.

Still, many finance professionals are skeptical.

DeFi users leverage many benefits, such as:

  • Increased transparency
  • 100% visibility
  • Faster transactions
  • Clean records
  • Automated bookkeeping
  • Expense functionality

7 B2B DeFi Use Cases for Finance Departments

DeFi solutions were built for B2B payments. They're ideal for finance departments suffering from excessive processing and compliance regulations workload. The increased transparency and security methods lend themselves to meeting regulatory criteria worldwide. And they generally provide a better customer and employee experience.

Let's sneak peek at the common B2B DeFi use cases for finance departments.


1. Digital notarization

Even automated billing platforms need help decoding potential duplicate invoices and payments. But manually verifying transactions is incredibly labor-intensive. Financial professionals must review the documents and still need a notary's stamp on the transaction for authenticity.

DeFi platforms offer a simpler solution.

Paystand's DeFi developers developed an application that automatically notarizes and certifies payments: Assurety.

When a B2B transaction is digitally notarized, a certified receipt is sent to both parties to confirm the payment. Unlike the traditional method, this notarization can happen in minutes rather than hours. This eliminates one route to fraud while providing a clear auditable trail.


2. Streamlined bookkeeping

The earliest use of a blockchain platform and DeFi protocol is in bookkeeping. Blockchain technology is a transparent and unchangeable record of transactions, whether for crypto or fiat transactions.

DeFi B2B payment apps can now record crypto and traditional currency transactions. Since records can't be changed after commitment, the blockchain ledger provides an inscrutable audit trial.


3. Know-Your-Customer (KYC) workflows

Another critical aspect of financial services is fraud prevention. While digital notarization and bookkeeping records help mitigate potential fraud risks, it's crucial to have updated and verifiable customer documentation. As regulation tightens in the United States and the EU, among other regions, the DeFi space provides an excellent tool for KYC procedures and workflow.

A blockchain platform can securely store all client information and verify each transaction's records. The only way to change a record is to upload a new one.


4. Fast Payments

One of the benefits of decentralized finance and the crypto ecosystem is that payments need fewer intermediaries to verify the information. As a result, the cost of transferring electronic B2B payments is lower.

At the same time, the speed is the same no matter where the payments are coming from, which makes a DeFi platform for payments ideal for global transactions. Paystand's use of DeFi cuts DSO by 60%.


5. Ultra-secure virtual credit cards

Virtual credit cards are nothing new but are far less susceptible to fraud and easier to track. DeFi solutions for credit cards take it a step further. You can assign spend limits and automate expense reporting, and some DeFi solutions (like Paystand) offer significant rewards. For example, it's possible to earn rewards in crypto, which are often used to hedge inflation.


6. Automated workflows

Using smart contracts, DeFi applications can automatically verify and commit to transactions. They also push information through the workflow, generate receipts, and provide enhanced analytics.

The best part is that decentralized finance platforms like Paystand also integrate into legacy ERPs, so your team doesn't have to learn a whole new program.


7. Information and asset tokenization

Through a DeFi blockchain platform, assets can be recorded as a token. This allows for partial payments, makes it easier to raise funds, and helps with setting budgets.

You can allow payments and charge client cards without touching sensitive data. But other information can also be tokenized –such as credit card numbers, names, and other sensitive data. For example, we can replace personal details with a Fund-On-File token.


DeFi is more than a buzzword. It's a game-changer.

A technology primed for finance departments, DeFi platforms can quickly and easily transform your AR workflow. Read more about how DeFi and blockchain technology can revolutionize your payment processes here.