Blockchain Revolutionizes Payments: Unlocking New Levels Of Efficiency In Transactions

Despite the ongoing digitization of payments, this industry is still struggling to meet the growing demands of the public. Because of this, many financial market players are looking towards blockchain as a potential way to speed up the process.

Blockchain is a groundbreaking technology that offers a multitude of use cases and benefits for businesses operating in finance and many other industries. For a couple of years now we have been witnessing payment giants like Visa, MasterCard, and PayPal doubling down on blockchain-based payments. The same can be said about banking institutions, with one of the more recent examples being Citigroup’s prediction that blockchain and digital assets are set for mass adoption.

Considering these developments, we can see that the adoption of blockchain-based payments has become a major trend that can't be ignored. This article will cover some of the main reasons why this topic is of such interest to many traditional financial companies.

No Third Parties Mean Faster And Cheaper Payments

In traditional finance, a cross-border payment goes through multiple banks before reaching the recipient. This includes the financial institution of the sender, one (or more) correspondent banks, and the bank of the beneficiary. Due to the participation of several intermediaries, cross-border transactions not only have high fees but also take numerous days to process.

With blockchain technology, intermediaries become unnecessary. By integrating the tech into their platforms, businesses and financial institutions can send and receive transactions directly from their customers, partners, and stakeholders. No third parties mean no fees that businesses have to pay for using their services, thus decreasing the overall cost of each payment.

For example, merchants are typically charged approximately 1% for processing digital asset transactions, compared to the average 2.87% to 4.35% fees of card processors. For a business that deals with tons of transactions, saving on these fees translates to higher profitability and better competitiveness. For a retail business this is a significant benefit, as many merchants offer their products to customers at very low profit margins.

Besides cheaper costs, the lack of third parties in blockchain networks enables users to send and receive payments near-instantaneously. This significantly improves the customer experience, as it takes less time for their transactions to execute. Simultaneously, businesses don't have to wait days before they get paid. Instead, with instant access to the payments received from customers, enterprises can manage their cash more efficiently.

Improving On The Security Of Payments

Security of digital payments and related threats are always a prominent subject in the financial sector. Blockchain technology has the ability to enhance security practices in payments by providing a transparent and immutable ledger of transactions, visible to all network participants. 

The transparency allows for simplified auditing and easier tracking of transactions, and the decentralized nature of the technology means that data is not stored in a single location, which reduces the risk of fraud and hacking. In case someone tries to tamper with the information recorded in a blockchain, each copy of the ledger on the majority of participating computer nodes would need to change the same piece of information, which makes the hacking process much harder to accomplish.

By streamlining operations and reducing the possibility of fraud in this manner, blockchain has the potential to revolutionize such financial processes as cross-border payments, remittances, supply chain finance, and more.

Borderless Payments Allow For Greater Financial Inclusion On The Global Scale

Blockchain networks operate continuously on a global scale. Anyone with a working internet connection and a compatible device can access them to send and receive payments with no geography-based restrictions. 

Consequently, this means that a greater number of people get access to new payment and financial management opportunities, especially in countries where many people are underbanked. Statistics indicate that there are 1.4 billion people across the world who remain unbanked and have no credit cards or bank accounts they can use to settle their orders. Blockchain offers a promise of addressing the financial needs of such populations, fostering financial inclusion and economic empowerment.

Smart contracts on the blockchain can facilitate peer-to-peer transactions, offering payment options to those with limited access to traditional banking services. Not only that, but digital identities stored on the blockchain can also improve the inclusion of underbanked populations in the financial system by providing them with a verifiable record of their financial history. 

Blockchain Payments Is A Trend That Will Take Over The Market

From cost-efficient fees and faster processing times to increased profitability and enhanced security, blockchain-based payments offer many benefits that can be adopted in global finance. Large companies and payment providers are doubling-down on this, and those that aren’t already involved can be expected to jump on the bandwagon in the near future. It is a trend that shouldn't and can’t be ignored, so instead it should be embraced so that the global financial ecosystem can enter a new age of innovation.