Blockchain Technology is Driving Innovation in Payments Industry
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Blockchain is the innovative technology that is changing payments industry. Industry leaders like American Express, Master Charge and Visa are setting up to use the blockchain technology given its obvious benefits with regard to speed, accuracy, cost effectiveness, security, and more. Companies like HEFFX are providing a Blockchain backbone to many companies entering the industry.
As the name implies, blockchain is a chain of blocks building step by step. As each transaction takes place, it is put into a block, which is then connected to the previous block. The transactions are blocked together to form an irreversible chain.
The secured storage and transmission of data through a decentralized database is the most attractive feature of the blockchain technology. Originally used for cryptocurrency transactions, the system is transparent and incorruptible and meant to provide unaltered information.
Driven by multi-industrial adoption, the technology has rapidly gained traction over the last few years. The solutions offered by other Key players in this domain like IBM (NYSE:IBM) and Microsoft (NASDAQ:MSFT) have been adopted by the insurance, banking, food supply and automobile industries among others.
There is a huge amount of activity around blockchain technology, and payments is definitely one of the Key spaces to watch.
The attraction of the blockchain technology is hidden in the benefits it provides in 3 necessary areas of payments: Security, Cost and Speed.
Security: Data for transactions taking place via blockchain can be stored with all details such as the transaction amount, a guarantee of payment, confirmation of the payment and account profiles for the parties involved. Data theft on a blockchain becomes highly impossible because if data is changed on one node, every other node would have to reflect that change for it to take effect. Since blockchain uses a distributed consensus, tampering with its records without being noticed by an entire network is difficult. This makes the system extremely safe.
With minimum chances of double counting and hacking, the possibility of monetary losses is low via cybercrime. With increasing instances of cybercrime is expected to cost global businesses over $6-T by Y 2021, this secured ledger-based technology is bound to gain further importance.
Cost: Users are looking to blockchain for a solution to address high cost associated with the payments process under the present scenario, which involves costly, time-consuming, paper-based manual process. At present, fees have to be paid to various parties involved in payment processing and at times there are other fees at various other stages of the transaction. All these costs get elimination under blockchain since it nullifies the involvement of a third party in transaction processing, which pulls down overall costs.
Speed: Now, cross border payments are carried out through correspondent banks and not via a central clearing house, which lengthens the whole process, along with making it inefficient. Demand for speedier and efficient service makes blockchain technology a perfect fit here. On a blockchain-based payment, gateway payments can be sent anywhere around the world in 15 to 20 secs by eliminating intermediaries and using algorithms to verify and authorize payments instantly. This can shorten the whole process which under traditional model takes up to 3 days, thereby reducing the overall wait time for transaction processing.
Mastercard (NYSE:MA) launched its own blockchain network last year to implement the technology in the business-to-business (B2B) space to address challenges of speed, transparency and costs in cross-border payments.
The MA blockchain technology will complement the company’s existing capabilities including virtual cards, Mastercard Send and Vocalink to support all types of cross-border, B2B payment flows – account-based, blockchain-based and card-based.
The company recently joined Enterprise Etherum Alliance to explore the potential of the etherum technolohy across a gamut of uses among which some are outside the scope of Mastercard’s traditional payments environment.
Visa (NYSE:V) has recently launched Visa B2B Connect, a payment platform powered by the blockchain technology. Via V’s platform, Visa will offer its services using 23 fiat currencies and 4 partner banks including Commerce Bank in the US, Shinhan Bank in SKorea, Sberbank in Russia and United Overseas Bank (UOB) in Singapore.
American Express (NYSE:AXP) signed a deal last year to use the blockchain technology to pay U.K. customers who bank with Santander. Recently, CoinDesk reported that the company has filed a patent related to blockchain. Reports noted that the company’s filing emphasized the potential for blockchain to enhance existing card networks.
The technology is still in early stages, thus it may thus take a few years before it becomes widely accepted.
But, it is sure that blockchain is the coming transformational reality for the payments industry.