1.1 Introduction
PayPie is creating the first decentralized accounting platform for businesses that will provide real-time insight into financial data to achieve 100% accuracy for a credit risk algorithm that can be used globally.
This analysis will be conducted using a single ledger approach and will consider businesses’ all-time historical financial data to safeguard and transform the way credit risk is assessed by lenders, investors, banks and other financial institutions while building a blockchain-backed accounting ecosystem.
PayPie is the first fintech to develop credit risk profile of a business based on an in-built algorithm to constantly adjust it on the Ethereum blockchain depending upon the changes in more than 150 data points. This paper gives an overview on how PayPie will enable live financial audits, ends duplicate tasks, speed up credit approvals and improve the overall credit scoring process by disrupting business accounting landscape.
1.2 Today – Isolated, Closed & Disconnected Systems
The double entry accounting system was invented more than 600 years ago with the purpose of minimizing errors in the books of a company with the introduction of debit and credit. It allows firms to keep records that reflect what the firm owns and owes and what the company has earned and spent over any given period.
However, accounting systems today are closed systems, and unethical practices from companies like Enron used accounting limitations to misrepresent earnings and change the balance sheet to show favorable performance. Today there is no connection between the books of one company with the other company they are buying or selling products or services to/from. It allows company A to cheat on the transactions that were happening with company B. This lack of transparency contributed to the largest bankruptcy in American history at that time and one of the biggest audit failure of our era.
The double entry system solved the problem of companies knowing whether they could trust their books.
However, to win the confidence of outsiders, independent public auditors also verify the company’s financial information (balance sheet, income statement, cash flow statement, etc.). The cost of an annual audit of a moderately sized company starts with the tens of thousands of dollars and can easily reach into six figures.
Banks now lack real-time financial insights of business, and their decisions are based on historical data that may be six months to a year old and those numbers do not reveal enough quality data to obtain an accurate appraisal of the company’s financial health. Traditional financial institutions turn down 72% of funding requests and other lending players take 2 to 7 business days for due diligence, and if approved, it takes 2-5 business days to get money in the bank. This is not an ideal situation, and if small and mediumsized enterprises (SMEs) must accept deferred payments, then these enterprises need new ways to get financing.
Information in an accounting solution used by a business is usually isolated and closed to the public, so it is not possible to prove the immutability of records, accuracy of the data without exposing all the business secrets. Balance Sheet and P/L tells only half of the old story about business. Blockchain handles anonymity and is capable of bringing reliability by bringing transparency by publishing relevant, valuable data, and this is going to power the forward-thinking companies in coming years
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