Everything Is Digital. Why Isn’t Your Transfer Agent?

Choosing the right stock transfer agent may be one of the most overlooked yet mission-critical aspects of your business. Founders often consider many factors like price, capacity, and track record when evaluating transfer agents. However, the decision can ultimately be minimized because of the last milestone problem. What’s that?

An entrepreneur’s ultimate goal is to make their company profitable and successful. Bringing on investors and issuing shares is a big milestone in a company’s founding and coming of age. It’s also a critical milestone for investors seeking to participate in the company’s growth and success. Yet while industries and technology have advanced at a rapid pace, the process of creating and managing shares has not evolved much in over 40 years. Until now.

21st Century Transformation

The “modern” process of issuing stock, managing shares, tracking ownership, facilitating investor voting, reporting and communications, and all the other back-end logistics in enabling businesses to be capitalized was developed by Computershare in 1978. And, for the most part, it hasn’t changed much since. 

The process is known as book entry and essentially keeps track of both sides of a trade using spreadsheets to maintain digitized records of physical stock certificates. This type of hybrid recordkeeping was re-examined after Hurricane Sandy flooded the basement of the Depository Trust & Clearing Corporation (DTCC) in 2012, wiping out 1.3 million physical certificates. Although the loss of physical certificates did not cause material damage to markets, it did cost the firms maintaining those records dearly, and prompted others to look for new solutions. 

Digital-first solutions began to take shape in the aftermath of Hurricane Sandy. Their goal was to ensure that paper certificates would no longer cost businesses undue burdens in the face of natural disasters, or simple human error. In 2019, Securitize became the first digital transfer agent utilizing the blockchain to put this vision into practice. 

Types of Transfer Agency

What’s the difference between a traditional transfer agent and a new, digitally-native transfer agent like Securitize?

Traditional transfer agents manage cap tables using book entry to keep track of stock certificates. While most book entry recordkeeping is now digital, legacy paper stock certificates still occupy a lot of physical space and are difficult to update in lockstep with their digitized counterparts. This lag can lead to securities mismatches which can be detrimental to your business. Worse, human or bureaucratic errors can even result in inability to exit your shares when you need to.

Digital transfer agents offer the ability to streamline stock issuance and management services so your business doesn’t get caught up in managerial fiascos. While many of the big transfer agents use digitized order books to manage records, Securitize is currently the only active digital transfer agent using blockchain technology to make the process more efficient and programmatic. 

Using blockchains like Algorand, Avalanche, and Ethereum, Securitize can help make digitized records digitally native and more secure, so basement floods don’t slow down business operations. Sidestepping known problems early on can help your business allocate resources to what matters most – your bottom line and customer satisfaction.

More Secure Issuance and Management

Whether your company’s stock has already been issued, or you are issuing stock for the first time, digital transfer agents can save you managerial headaches down the line. By planning ahead, businesses can ease the transition to critical milestones like stock distribution events. For businesses that have already issued stock, digital transfer agents like Securitize make the transition seamless. 

Here are three ways that using a digital transfer agent can help your business hit its milestones today and into the future:

• Digital transfer agents simply cost less. Businesses can save money by reducing the amount of labor involved in indexing, organizing, and matching pieces of paper to digital records. While some transfer agents using book entry may already have lower cost bases, they don’t necessarily pass the savings on. Securitize costs less because we do not charge for transfers; instead, we pass on the operational savings to our customers. Combined, these savings add up and can help businesses improve their bottom line.
• Sometimes what you don’t do or can’t see can be costly. Companies that don’t process stock transfers in a timely fashion can be penalized. For example, when BuzzFeed went public, its traditional transfer agent made it impossible for some shareholders to exit, causing an outcry among early employees who were not able to trade their shares. Digital transfer agents that use programmatic smart contracts can avoid this scenario.
• Issuing and managing stock should be as easy as using email. If you’re using a paper-based transfer agent, you may be familiar with the trials and tribulations of getting all your ducks in a row in time for quarterly reviews. Digital-first issuance makes stock management easy, so you can simply point and click to get what you need.

Digital Transfer Agency

Digital transfer agents put agency back into the hands of businesses so they don’t have to spend time matching up disconnected records to update their cap tables, or depend on spreadsheets which can be accidentally modified. Digital transfer agents can provide clients with real-time awareness into who owns what stock so business owners don’t fly blind. 

Furthermore, businesses using digital transfer agents are able to issue communications and even distributions on demand when possible, whereas traditional transfer agents rely on a centrally stored database to manage these operations, which their clients don’t have direct access to. These key differences between traditional and digital transfer agents also highlight the benefits of using blockchain technology to maintain stock records. 

Blockchain-based digital transfer agents like Securitize eliminate the need to reconcile transactions across disparate spreadsheets. Because records are managed by a single source of truth - the blockchain - that cannot be accidentally altered or compromised by local catastrophes like Hurricane Sandy, stock records remain safe and sound. By offloading recordkeeping to a trusted third party that utilizes blockchain technology, founders and owners can keep their eye on the prize. 

When using a digital transfer agent like Securitize, even if you need to sprint up a hill to get over the finish line, your business’s stocks will be securely and efficiently issued, managed, and executed on time, every time.¹

Click here to learn more about our digital transfer agent solution.