Will Web3.0 Require a CFO3.0?

The next iteration of the internet, known as Web3.0, is on the way and could fundamentally change the way businesses operate and transact.

The development is expected have profound implications for Chief Financial Officers and company finance departments, but exactly how CFOs should respond right now isn’t totally clear – Web3.0 isn’t here yet and there is no widely agreed definition of what is or how it will operate.

Broadly, it can be described as the third generation of the WorldWideWeb.

Web1.0 was built largely of static pages, a bit like online brochures. For the most part, user interaction was limited to reading them. Web2.0 allowed consumers to transact – such as booking flights or doing the supermarket shopping – and to create content and interact via social media sites such as Facebook, Twitter and YouTube.

Web3.0 will largely be built using blockchain – the same technology that powers cryptocurrencies such as Bitcoin and Etherium and will be much more dynamic.

Steve Pratley, KPMG partner in finance strategy and performance, says the definition is still emerging, but adds: “You could go all the way as far as saying that it breaks down the very nature and fabric of how we operate and transact in countries, in economies, with banks, with institutions.”

“What we do know is that it’s completely disruptive in that we’re not going through traditional means of a bank as an intermediary, having an account.”

This raises a difficult issue for CFOs.

On the one hand, Web3.0 is a highly disruptive technology that will upend the way business and finance is carried out. On the other hand, we don’t yet really know what it is or how it will operate.

But that doesn’t mean CFOs can’t start preparing their finance function, and the broader operation, so that they’re better equipped to respond to the change when it does arrive.

Organisations still need to master the basics of Web2.0, by switching finance function from a backwards-looking function to one that helps shape the story of what’s to come. They need to use the data available from Web2.0 to derive better insights and deliver on the strategic priorities for their organisation.

Pratley ‘s colleague Nikki McAllen, KPMG partner in charge of their Global Finance Transformation Centre of Excellence, says there are still too many accountants being employed in finance functions and not enough commercial analysts and data scientists.

“Getting ready for 2.0 and having that it down to a ‘T’ will mean that they’re going to be well placed from a digital strategy perspective to cope with the disruption of 3.0,” she says.

Organisations need to develop their digital strategy and link data through their front, middle and back offices and from their customers and suppliers so all of those functions work harmoniously together.

“If you cast your mind forward to where Web3.0 could go, we could be eliminating a significant portion of some of that traditional finance activity and moving the dial around what is expected of a finance team away from a lot of that value protection work – which you could argue would be largely automated and eliminated – and more towards insights creation and business-steering decisions,”

Steve Pratley, KPMG Partner

The Big Four accounting firms are dipping their toes in the crypto pond. In February, KPMG Canada made an allocation of cryptoassets including Bitcoin and Ethereum, to its corporate treasury, the firm’s first direct investment in cryptoassets. The investment is a reflection of the firm’s belief that institutional adoption of cryptoassets and blockchain technology will continue to grow and become a regular part of the asset mix.

One view of Web3.0 is that it will decentralise the internet and users won’t have to rely on social media companies and financial institutions to interact and transact. They will also own and control their data instead of ceding it to tech companies.

Nick Abrahams, global co-leader, digital transformation practice at law firm Norton Rose Fulbright, says that is probably a “techno utopian view”, but agrees it will rely on blockchain, which will allow the ownership of digital assets and make for a much more immersive three-dimensional experience of the web.

“We’ve introduced this new asset class we’ve never had before. A company normally had equity or it had cash. And now it’s got tokens, so we have to figure out how to value those,” he says.

Companies are starting to issue non-fungible tokens, or NFTs – a digital asset which confers a right to do something. Many tokens are confined to marketing efforts, but they are starting to be used more widely. Treasury Wine Estates last year created a token that gives the owner the right to a bottle from a barrel of the rare and prized wine, Penfolds Magill Cellar 3, vintage 2021.

In the US Starbucks, Home Depot, Whole Foods and AT&T are all accepting crypto payments and Abrahams says this raises the question of how companies manage that and how they manage the customers’ gains or losses when they transact with their cryptocurrencies.

Abrahams cites figures that already there are US$2 trillion worthy of cryptocurrencies and 41 billion NFTs.

“Either you say that that all goes to zero in five years or you say that digital assets are a thing,” Abrahams says. “In which case if they’re a thing, you probably need to think about how engaged you become with it. Because the problem with digital assets and Web3 is it’s far more complicated than the original internet as a composition.

“You won’t be able to read up on it overnight.”

Web3.0 is likely to increase the number of peer-to-peer transactions using cryptocurrencies without intermediaries because of its reliance of blockchain technology and its immutable records of transactions. Finance functions need to think through the implications and risks of this, says Linda Nitschke, partner – corporate and finance function transformation at PwC.

“It’s really thinking through at a very practical level what that means for the CFO,” she says.

CFOs will need to start considering what holding cryptocurrencies would mean for the balance sheet and the accounting standards which apply. What will it mean for the accounting and treasury functions and how will it change financial statements?

“It’s going through the people aspect, the process aspect, the performance aspect, the technology aspect of your finance function. Where on the maturity curve is that up to and do you need to accelerate things quickly so you’re prepared for, potentially, the implications of Web3.0,” she says.