The past decade has seen the financial industry shaken by challenges concerning trust and reliability. Pain points in the payments industry regarding high transaction fees and cross-border payments continue. Blockchain has the potential to resolve these issues, and in doing so, has begun to disrupt the financial industry almost entirely.
Big banks on board
A consensus appears to be growing that blockchain-based payment networks and digital currencies can bring a sea change within the financial services industry. Although banks were initially sceptical, JPMorgan has now created its own stable coin token for use on blockchain distributed ledgers, and IBM has launched its Blockchain World Wire which will enable banks to transfer tokens and cryptocurrency in near-real time.
In addition, many of the major credit card companies are developing blockchain solutions in the payments sphere. For example, Mastercard recently filed a patent for a blockchain system with a focus on securing customer information and Visa is partnering with the Chain platform to simplify cross-border payments.
What’s the downside?
Industry commentary suggests that the ubiquity of payment options such as cash and credit/debit cards makes the argument for blockchain being used for consumer payments rather weak. Furthermore, questions around the stability of cryptocurrencies such as Bitcoin and Ether has resulted in a lack of individuals seeking to invest in and engage with cryptocurrency. And then you have the issues regarding speed. For instance, it can take minutes for the network to confirm a single Bitcoin transaction – VISA processes 24,000 transactions per second.
What are the benefits?
Well, it really comes down to transaction transparency – this technology allows everyone to keep an eye on what is going on within a system without giving any individual control over it. It means that each transaction takes place between the consumer and merchant with little or no need for intermediaries, and there is an indisputable transaction history and complete visibility on both sides.
Newer blockchain platforms such as Ripple and Stellar are seeking to match (or exceed) the scale of payment networks such a VISA and SWIFT making speed concerns seem ill founded. It is clear that blockchain technology is developing at a pace, and looks set to overcome all barriers put in place.
Crypto could go mainstream – Facebook is finalising its own coin for launch next year that aims to provide affordable and secure ways of making payments, regardless of whether users have a bank account. In addition, some retailers are already accepting cryptocurrency as a form of payment. US startup Flexa has enabled Starbucks, Whole Foods and other major retailers to accept Bitcoin with a process similar to existing digital payment methods like Apple Pay. Once the app is downloaded, payments are made by simply scanning a QR code at the till.
The changes that blockchain could make within the consumer and retail industries has shown itself to be transformational but it will take time to see whether we move to a point of widespread consumer adoption.