Cha-Ching on the Chain: Why DLT-Powered Payments Are Here to Stay
Blockchain technology isn’t new and over the past decade of its existence has proven time and time again its unique ability to drive operational efficiencies and modernize global industries from finance to healthcare is indisputable. Specifically, the Decentralized Ledger Technology (DLT) powering Blockchain networks provides a transparent, secure and immutable ledger that has revolutionized payment systems globally. And while most of the blockchain-based payment innovations have been incremental and fairly discreet, the sum of these consumer and enterprise payment developments have created the foundation for the next era in digital financial transactions.
A whitepaper from the U.S. Faster Payments Council and blockchain-based payments powerhouse Ripple finds that 97% of industry leaders across multiple sectors believe in the power of blockchain and digital assets to speed up payments within the next three years. This universal support of blockchain-powered digital payments by some of the largest payment organizations in the word is remarkable.
But to understand why there is wide support, one must first understand why blockchain-based payments are so desirable. A payment involves much more than a simple transfer of funds from one account to another. It encompasses a variety of processes that are often overlooked, such as managing transaction disputes, detecting and preventing fraud, processing chargebacks and bank reversals, integrating with accounting systems, and handling taxes and financial reporting.
Blockchain technology offers many advantages over traditional payment systems, and it has the potential to revolutionize the world of finance, including speed, security, and transparency. Blockchain-based payments can also reduce transaction costs and eliminate the need for intermediaries.
Consumer Adoption of Blockchain Payments
The “holy grail” of digital payment growth and adoption is to simplify the complexities for both consumers and businesses. Companies like PayPal, Visa, and Mastercard have all embraced blockchain technology in an effort to achieve more simplicity, while offering enhanced consumer experiences. Well known names like Mastercard, and its partnership with Web3 payment protocol Immersve, are allowing users to make crypto payments on digital, physical and the metaverse worlds. But lesser known names like Ripple and Stellar are also doing some incredibly interesting things. Specifically, Stellar makes it possible to create, send and trade digital representations of all forms of money (dollars, pesos, bitcoin, etc.) so that the world’s financial systems can work together.
Each of these efforts by digital and traditional payment companies have the following similar objectives:
Enterprise Adoption of Blockchain Payments
In order to remain competitive in today’s digital landscape, banks must prioritize process automation and delivering a top-notch digital experience for their customers. Blockchain technology has the potential to transform the banking industry and improve services while enhancing the customer experience. Furthermore, blockchain can help banks save costs and reduce risk from fraud, data loss and more.
A research report from Bank of Americ a shows that over a quarter of the banks they cover have already incorporated blockchain technology into their businesses in some form. JPMorgan, Citi, Wells Fargo, US Bancorp, PNC and Fifth Third Bank are among the many banks that are already using DLT/blockchain, while many more intend to implement in the coming months and here’s why:
For international payments, it’s clear that the trend is moving towards borderless, digital payments. In fact, 90% of the payments leaders surveyed by U.S. Faster Payments Council say that blockchain technology will deliver cost improvements for international transactions and 75% anticipate cost benefits for domestic payments.
Ripple, an early pioneer in enterprise DLT payment systems, continues to gain significant traction in the banking and financial industry by enabling cross-border payments, but even legacy payments companies like Visa are getting in on the action. Visa’s B2B Connect also enables secure and transparent cross-border payments for businesses.
Secure, Borderless Payments with CBDCs
International, cross-border payments cannot be discussed without the recognition and mention of universal stable instruments of exchange, such as stablecoins and Central Bank Digital Currencies (CBDC). CBDCs are the digital form of a country’s fiat currency built and managed on-chain and appropriately regulated and optimized for payments.
The main goal of CBDCs is to provide businesses and consumers with privacy, transferability, convenience, accessibility, and financial security. CBDCs could also decrease the maintenance a complex financial system requires, reduce cross-border transaction costs, and provide those who currently use alternative money transfer methods with lower-cost options.
The move towards CBDCs continues to gain momentum, especially now as Central Banks look to bolster their economy in uncertain times. All told, around 100 countries are exploring CBDCs at one level or another, with Europe and Asia making huge steps forward in the process. Many of these efforts are in partnership with major banking institutions like Goldman Sachs and JP Morgan in an effort to leverage the versatility of CBCDs as international payment tools.
The Future of Payments is Blockchain
While crypto seemed to explode onto the scene all at once, the journey for blockchain-based payments has been slow and steady, purposeful and careful. The efforts have been collaborative and pioneering all at the same time, with startups working alongside legacy banks, governments and regulators. This is all a good sign that the world knows that the future of money is digital and blockchain is the foundation it will all be built on.
Originally published at https://www.thestreet.com on March 16, 2023.
