As with any industry where technology plays a central role, payments is a space where the concept of “disruption” is both omnipresent and inevitable.In the payments sector, the technology consistently tagged as that disruptor is blockchain. Blockchain by definition is a decentralized digital database of publically available records and the practical application is ubiquitous across numerous industries. Sectors as wide ranging as healthcare, energy, and safety all have well publicized use cases for the implementation of blockchain technology and that list continues to grow daily. However, as diverse as the sectors enamored with blockchain are, payments continue to be a critical focus.
The Deloitte Center for Financial Services anticipates transactions processed via blockchain technology will surpass transactions processed via ACH (Automated Clearing House) by 2025. Security and incorruptibility are crucial components of a decentralized ledger and blockchain as a whole and there are few areas where security is taken more seriously than in the transfer of value. Transaction speeds can vary dramatically depending on the blockchain technology implemented, however the ledger reflects an instantaneous transfer of value which is what makes it such an attractive technology for payments. Reduction in both friction and cost are some of the leading benefits and potential applications of blockchain technology in payments. A study from Accenture that looked at eight investment banks, estimates that blockchain technology could save them between $8 and $12 billion annually which would equate to over 35 percent in savings.
Nowhere are these opportunities for improvements in efficiency and cost more readily visible than in cross-border and international payments. Sending funds cross-border has historically been a tedious, problematic, and expensive process for banks, businesses and end users. Some players in the payments space are looking to blockchain to help alleviate those challenges. Mastercard recently launched a blockchain focused development partnership with an express intent of improving the speed and security of cross-border payments. Ripple, utilizing blockchain technology is looking to offer improved processes for bank and enterprises and urging international commerce to rethink how it operates.
"Reduction in both friction and cost are some of the leading benefits and potential applications of blockchain technology in payments"
The focus for international payments doesn’t stop at private businesses and financial institutions. Governments around the world are also taking notice, especially in emerging markets, where there is a less developed payments infrastructure and the economy may be more open to blockchain application. Chile, as an example, has actively promoted cryptocurrency and blockchain adoption and over five thousand local merchants accept a variety of cryptocurrencies. This success has been seen in other regions where the population is heavily un-banked or under-banked and the penetration of smartphones is high.
In every sector of financial services, whether cross-border payments, clearing and settlement, lending and funding, blockchain is poised to make significant impacts in how money changes hands. For every entrenched process or technology where friction and excess cost exist in payments, there is an opportunity for blockchain to disrupt how things are done in a meaningful way.