BlockTac Podcast #6 – Digital Seals: 3. Brand protection against black and grey markets

(Transcript)

Friends, I am Francisco Guillén, BlockTac CEO and I welcome you to a new podcast in this series in which we present in detail our different business solutions and its applications.

In previous podcasts, we have made you aware of what our Blockchain digital seals consist of and we have also reviewed the different industries in which their application has proved to be useful.

Today I would like to delve into their characteristics and functionalities, in particular in the way they answer or solve business problems. When asked to describe in a few words what this digital tool consists of, I answer that they are the best protection for brands and consumers and the best way to achieve direct communication with them. In fact, in this podcast, I am going to focus on the first part of the definition, on its protective function for both brands and consumers.

You may be wondering: But what is there to protect brands and consumers from? What interest does such a solution have in today’s times? The answers are very actual: brands and consumers must be defended against fraud, and, yes, more urgently at the moment we are living, all affected to a greater or lesser extent by the Covid-19 pandemic.

In order to understand the design of our solution, it is important to first understand the nature of the problem that companies and consumers face, and how we expect it to evolve in the short term. The term “fraud” means very unlike and different things depending on the industry in question. But in any case, there is no doubt that we are dealing with a fraudulent product when these situations arise, for example, when a copy of the original product is sold as authentic, or when it has tampered, or if it is a stolen product. These three circumstances occur in what is called a “black” market, to differentiate it from the “gray” or irregular market, in which original products diverted from the official distribution network are illegally put on sale, both from crook and authorized dealers.

Regardless of the magnitude of the fraud, always difficult to prove accurately for obvious reasons, there is no doubt that we are facing a growing problem due to several factors, including these seven:

– The globalization of the markets.
– The expansion of distribution channels and the increase in points of sale.
– The existence of powerful worldwide brands very attractive to consumers in all geographic markets.
– The current low cost of counterfeiting technologies.
– The limited resources and efforts devoted globally to fighting fraud.
– The existence of high taxes and tariffs that charge international trade.
– And finally, also, the complicity of some of the consumers.

We cannot ignore either the special situation that we live as a consequence of the pandemic and that is added to the factors previously described. Trade relations are undergoing changes characterized by greater uncertainty and concerns, which do not appear to be disappearing any time soon. And in order to better understand the extent and severity of the problem, let us analyze each of the main groups affected.

Let’s start with consumers. Each time they ask with more strength and concern:

– Is this product safe? Is it in good condition?
– How can I find out about it immediately?
– Is it an original or authentic product?
– Where does it come from? How did they send it to me?
– Where and to whom can I complain?

On the other hand, companies, to achieve the viability of their businesses, demand answers to these questions:

– How do I prove the authenticity of my product?
– How do I ensure its quality? How do I certify that it is a genuine product?
– How do I defend against different types of fraud?
– How can the digital transformation of my business help me?
– How much is it going to cost me? Will I have to make significant investments?
– What impact will it have on my prices?
– What do I do to get to know my customers better? How do I contact them directly?

In order to fight fraud, the most committed companies are forced to incur significant costs for audit and process control systems, supplier evaluation, inventory tracking, and specialized personnel. They have no other choice but to defend their sales and profits, to take care of their official distributors, to secure the availability of inventories and to meet demand, to control their prices, margins, and to defend market share and the prestige and value of their brands.

If the disorder that the fraud causes to the companies is significant, the distress to the consumers is not minor, neither quantitatively nor qualitatively. It can be measured by the amount of money lost, for sure, but there is much more. Objectively they are endangered by the lack of quality and safety of the products they buy, by the loss of functionalities, by the absence of guarantees and compliance with regulations. All this generates concern and outrage about deception, when not inconveniences and even physical discomfort, and in extreme cases may cause death. This may seem like an excessive statement, but it is denied by the frequent health alerts, news of food poisoning, or the yearly statistics of the million deaths, three hundred thousand of them children, in ninety countries and from counterfeit drugs.

Public Administrations are also affected by the increasing number of fraud crimes, by frequent health alarm cases and the loss of revenue from uncollected taxes. And they must also exercise their responsibility by helping to answer the previous questions from companies and consumers.

At BlockTac we share a mission that transcends us and that is to put our best efforts to help companies to protect themselves from fraud and accordingly care for their consumers and their brands. Our digital seals contribute specifically to this objective, and now I will mention four of its most outstanding features.

1. The first and most fundamental characteristic is to act as proof of authenticity. And this is possible due to the way we rely on Blockchain technology and the rigorous manner in which we execute the registration and verification processes of our clients’ product information.
   We provide for each product unit, a unique identifier, which in most cases is presented in the form of a QR code. We can also incorporate this identifier in other supports, such as RFID devices, although the QR code is the most efficient and widespread reading system. This identifier can be presented externally visible or, in most cases, protected inside the product, or outside, but hidden in a double-layer label.
   When the buyer discovers the QR code and reads it with a mobile phone, he is directed to the manufacturer’s website. There, the authenticity of the product is verified on the Blockchain by activating a verification button. And this serves also to break the seal and to record the time and date on when this has taken place.
2. The second feature is closely related to the previous one and involves its effectiveness in ending the fraud of the products to which the seals are applied. This functionality stems from the fact that the identifiers registered on the Blockchain are non-falsifiable, or in other words, any copy of those identifiers and their transfer to fake products are useless. Any verification of these copied identifiers will launch an alert informing the buyer that he is facing a fake product, and may report it on the spot by sending a predefined email to the manufacturer or producer. In this way, the seller of the product is also exposed and all the financial incentives to carry out this fraud disappear.
3. A third and surprising feature of our digital seals is the so-called “nuclear button”. It has been designed for some extreme circumstances that manufacturing companies may face. In the event of items stolen or diverted from the official distributors, or in cases of conflicts with customers who, for example, might refuse to pay, the manufacturer may activate this “nuclear button” function. This has an impact on the products delivered to that customer, where the authentication process will be blocked and the information presented modified in an appropriate manner. Therefore, those clients will find their image and even their economic results gravely affected.
4. Finally, I want to mention that the combination of our digital certificates and seals is used to track products through the supply chain. This results in one of the most efficient traceability functions on the market and of extraordinary simplicity. Without the need for complex engineering or computer systems, all activities in the supply chain can be tracked and reviewed, who carries them out, at what time and where they take place, and the progress of shipments and deliveries. And in the case of the lack of commitment of any member of the chain, or the unfair behavior of product diversion to irregular markets, the activation of the seals will alert and locate those illicit products and guide the identification of the liable agent.

To conclude, it should be noted that these functionalities are the result of the unique and smart operation of Blockchain technology by our technical teams. Unlike other developments, our solution stands out for being a robust, flexible, and scalable system, which relies on the most widespread platform (Ethereum) but also compatible with others and does not require the download of specific applications to operate. It integrates swiftly and efficiently with actual business systems and has been designed for easy customization and autonomous operation even in small businesses. All this has earned us the Seal of Excellence on Innovation, a competitive award from the European Commission.

And that was all for now. Yes, there is still more to review on other features of our digital seals, as much appealing as the ones we have covered today. But we will leave them for the next podcast.

Thank you for your interest and see you soon.