Blockchain technology will revolutionize payments
Despite the hype, technology has real value.
It goes without saying that it’s a very exciting time to be in the payments industry; new entrants and incumbents alike are putting many hundreds of millions of dollars and countless hours into improving our payments infrastructure.
And it seems that not a week goes by without a big FI investing millions in a blockchain startup or a blockchain startup announcing a revolutionary new approach. As it’s often tricky to separate the hype from reality, I did some further research to do just that.
The findings? The potential for blockchain to the marketplace is high and disruptive to existing business models.
That of course seems obvious and could have been written three months ago. But what else did I learn?
- Public blockchain technologies do not offer scale and speed needed to achieve mass adoption for high volume use cases.
- However, a private, permissioned-based network built on blockchain technology can provide tremendous value to the payments industry.
- The technologies are immature and their ability to support the challenging needs of the business has yet to be proved. My opinion is that it will be between 3 and 5 years before there is substantial adoption and impact on payments costs and revenues.
- Blockchain technology can be deployed within existing payment processing models.
- The current industry focus on the move to real-time payments and hence on the clearing process in payments will drive interest in these new technologies.
Public ledgers have publicly admitted that today there is a limitation on transactions. The 7-10 seconds needed to complete a transaction is too long to displace the current consumer expectation of 25 milliseconds for a card payment, but for settlement, it is significantly faster and more secure than 1-2 business days.
There are multiple potential uses cases, with many around the world actively exploring and developing solutions. Here are some examples -
Multi-party clearing - Applying the technology to the multi-party clearing process will bring tremendous benefit. Banks and their customers will be able to have a single view of balances and transactions.
Immutable and common data/ledger - An indisputable, permanent, up to date and distributed record of transfers, exposures and ownership that is tamper-proof provides immense value across wholesale payments to banks, their customers, clients and potentially to regulators.
Customer Service - Benefits will result from improvements in data/transaction visibility and consistency across multiple parties, reducing complexity and incidence of exceptions, and improving access and visibility of the status of a payment at any given moment.
Transfer of Funds – This could also fall into wholesale banking. Blockchain technologies could be applied to a variety of payment scenarios. In single currency domestic payment, the impact could be to reduce or remove the need for a central counterparty and the delays in settling transaction net or gross in real time.
When applied to cross border payments, benefits include real-time settlement, changing or replacing traditional correspondent banking and thus making the process cheaper and faster for payments service users.
In conclusion, from a practical sense, I’m a blockchain proponent—adopting it in small networks or highly targeted markets can bring unbelievable benefits and true business value to the payments industry.
However, blockchain is not quite ready for adoption for mass consumer transactions, but it could be in 3-5 years. And more importantly, there is real value to be had in exploring the deployment of blockchain technologies in the clearing and settlement process. I look forward to what the next couple of years will bring.
Related Blog Posts
Women Must Choose to Rise Up Despite Past, Current and Future Circumstances
Money20/20, Europe’s biggest payments and fintech event, was recently held in Amsterdam and featured Rise Up Money20/20, a global program designed to address the gender imbalance in leadership positions within the financial services and fintech industries. A cohort of 30 female professionals was selected to take part in an exclusive curated agenda, complete with a series of bespoke content sessions, one-to-one mentoring and unique networking opportunities.
Beyond Borders: Navigating the Challenges of eCommerce Expansion
eCommerce continues to flourish, with impressive growth figures year after year. In 2018, global online sales reached almost $3 trillion, and are expected to hit $4 trillion by the end of 2020.
Despite eCommerce taking an increasing slice of the retail pie (which could now be as high as 15 percent according to recent figures), it is increasingly challenging, with competition and cost pressures creating significant issues for merchants of all sizes.
How Italian Banks and Processors Can Capitalize on Digital Transformation
The European payments landscape is in an era of significant change thanks to PSD2 and other macro factors, but there is more than one way to deliver real-time and open payments to meet PSD2 requirements and its technical standards. Banks and processors must manage this alongside their own set of domestic challenges and opportunities.
Overcoming Cyber Threats to Payments Security
Recently, Gene Scriven, chief information security officer at ACI, spoke at NACHA Payments 2019 on the ever-changing landscape of cybersecurity. Here are a few highlights from his session, including the impacts of cybersecurity breaches, today’s emerging threats and the new strategies to keep your organization safe.
Removing Gender Bias and Enabling Women to Succeed in Leadership Roles
The recent UK Women in Payments (WIP) Symposium 2019 took place in London, recognizing unique leaders who help uplift women in the payments industry. Among those recognized was ACI’s Melissa McKendry, vice president, Retail Banking Implementation Services, who was honored by WIP as the 2019 Advocate for Women.
Why Banks Must Democratize Machine Learning for Fraud Prevention and Payments Intelligence
Banks are already actively on the path to digital transformation, considering new technologies, new customer experiences and new business models. A critical piece of this digital transformation centers on better understanding the wealth of data within the banks’ systems and mining it for improved customer insight. In the New Payments Ecosystem, data is as valuable to the bank and its customers as the deposits held in their accounts, and it should be protected, and leveraged for the benefit of the customer.
Regulating for Real-Time: The Role of Government in Payments Modernization
Dr. Leo Lipis and Craig Ramsey, Head of Real-Time Payments for ACI Worldwide, continue their discussion on real-time payments and the findings of the new white paper, Get More from Real-Time.
Payments and Fraud: The Paradox Twins
Digital commerce through web and mobile is where merchants predominantly experience shopper growth today. This has become a hugely important domain for their focus. It offers a means for international growth, new market penetration and a way to engage with shopper-hungry Millennials in their culture. Merchants frequently adopt a Digital-First, eCommerce-First or Mobile-First strategy to ensure full corporate buy-in to this strategy.
Open Payments Systems for Merchants: Don't Close Down Your Options
Remember “Open Systems”?
It was a big industry nom du jour in the 80s and 90s. Every IT system had to be open and therefore flexible and future-proof. Nobody can argue with the logic behind this; making systems easy to integrate with other systems, ensuring vendors could cooperate with one another; creating agility to improve time to market and drive down costs.
Issuing and Acquiring in a Real-Time and Open Payments Ecosystem – The Global Picture
Dr Leo Lipis and Craig Ramsey, Head of Real-Time Payments for ACI Worldwide, continue their discussion on real-time payments, stemming from the findings of the new white paper, Get More from Real-Time. See part one.