B2B Payment Netting via Smart Contracts for Subrogation Claims
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Solution Overview
Problem
The complex and costly process of settling multiple debt and credit claims between organizations, particularly in the automotive insurance industry, leads to substantial operational costs due to the need for event-to-event subrogation payments, which are not efficiently managed by existing systems.
Innovation Solution
A blockchain infrastructure with smart contracts is employed to facilitate netting of business-to-business payments, using APIs and data structures to automate and track subrogation operations, ensuring a tamper-proof, transparent, and auditable platform for managing debt and credit claims, reducing operational costs through automated netting.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Productivity
If event-to-event subrogation payments are processed manually between organizations, then each individual claim can be settled, but operational costs and processing complexity increase substantially
Solution Approach 1:
The patent combines multiple individual debt and credit claims into a single netting operation that calculates and settles the net position between two organizations. This merging approach consolidates numerous event-to-event subrogation payments into one efficient transaction, reducing operational costs and processing complexity while maintaining accuracy.
Solution Approach 2:
The smart contract system performs multiple functions within a single platform: it tracks individual claims, calculates net positions, manages subrogation rights, and executes payments automatically. This multi-functional approach eliminates the need for separate systems for each function, reducing overall system complexity and operational overhead.
2Loss of information
If multiple debt and credit claims are managed through traditional accounting systems, then individual claims can be tracked, but transparency and auditability are reduced
Solution Approach 1:
The patent introduces a blockchain-based smart contract system as an intermediary layer between traditional accounting systems and payment processing. This intermediary provides a transparent, immutable ledger that records all claims and netting operations, enhancing auditability and traceability while distributing the computational complexity across the blockchain network rather than concentrating it in a single system.
Solution Approach 2:
The smart contract creates a digital copy of the netting agreement and transaction history on the blockchain, providing an immutable, transparent record that can be audited by all parties. This digital copy ensures information integrity and transparency without requiring changes to the underlying business logic or claims management processes.
3Ease of operation
If automated netting systems are implemented using blockchain infrastructure, then operational costs are reduced and transparency is enhanced, but system complexity and implementation difficulty increase
Solution Approach 1:
The smart contract is programmed to automatically execute netting calculations and payment settlements based on predefined rules and input data. The system serves itself by autonomously matching claims, calculating net positions, and initiating transfers without requiring manual intervention, thereby reducing operational complexity over time despite the initial implementation complexity.
Solution Approach 2:
The patent implements preliminary action by pre-programming the smart contract with all necessary netting logic, validation rules, and payment instructions before deployment. This preliminary configuration allows the system to handle complex netting operations automatically once deployed, reducing the perceived complexity for end users who simply need to input claim data.
Data Source
AI summary
Systems and methods for performing netting of business-to-business payments for settlement of running balances between parties are provided. To that end, blockchain infrastructures allow smart contracts that may be suitable for subrogation and netting operations, and the smart contracts that facilitate the operations. Application-programming interfaces (APIs) are provided that may be used to interact with the smart contracts.