How blockchain is changing the Payment Industry
Blockchain technology is a decentralized, distributed, and public ledger that is used to record transactions across many computers within a network. Because of its design and properties, blockchain is secure, transparent, and nearly impossible to alter.
In the finance industry, this underlying technology allows the transfer of currency with confidence that the transaction is secure and reliable.
The benefits of blockchain come from the following properties:
- Distribution: Numerous copies of the ledger exist throughout the network. Each time a new transaction and block are added, everyone within the network receives a copy. No single entity controls the ledger, but the system is designed to provide everyone with the same information.
- Immutability: A blockchain provides an accurate, chronological history of transactions. Because each person within the network has a copy, it’s nearly impossible to alter or erase transactions or to add information that hasn’t been verified. Doing so successfully would require a coordinated attack on hundreds — or even hundreds of thousands — of computers simultaneously, which is unlikely.
These features have many obvious benefits for the banking and finance industries. Here are some ways businesses are harnessing the power of blockchain:
Transferring money to other countries presents many problems and challenges for consumers and financial institutions. People send billions of dollars internationally each year, and the process is usually expensive, laborious, and error prone.
Blockchain can change all that. Many major banks have adopted international payments with blockchain technology, which saves time and money. Consumers can also use blockchain money transfers to complete electronic transfers with mobile devices, avoiding the cumbersome process of visiting a money transfer facility, standing in line, and paying fees for a transaction.
Inexpensive, direct payments
Most funds move through financial institutions, such as banks or credit card processing centers. Each of these steps adds a layer of complexity, along with fees that can become costly.
The benefits of blockchain-based transfers for merchants include:
- Reduced fees: When customers pay with a credit card, merchants pay processing fees that cut into profit. Blockchain payments reduce or eliminate fees by streamlining the transfer process.
- Eliminated insufficient funds: Consumers sometimes pay for goods or services with a bad cheque, which causes a loss and additional fees for merchants, as well as the possibility of a legal hassle to recover. Blockchain-based payments can give merchants the confidence of knowing that the transaction is good within a few seconds or minutes.
The benefits of blockchain-based transfers for individuals include:
- Fewer scams: Online scams are a concern for many individuals, but blockchain-based payments are quick and reversible. They’re also less expensive than using banking services, especially for pricey items.
- Less time and money: The safest payment methods are cash, wire transfers, and cashier’s cheques, but cash is untraceable, wire transfers are time-consuming, and cashier’s cheques can be forged. With blockchain-based payments, all of these issues are removed for greater confidence.
Money transfers aren’t the only way blockchain can revolutionize banking. Blockchain is an excellent method of tracking transactions and ensuring accurate, secure information, such as:
- Title details: A distributed ledger is nearly impossible to alter, making it easier to track ownership. Transfers of ownership and liens can refer to the ledger to verify the information, so there’s more trust.
- Smart contracts: Transactions can be costly, complex, and time-consuming, but blockchain offers an opportunity for automation. Smart contracts can track when a buyer pays and when the seller delivers, as well as address any problems that come up during the process. Automated systems also reduce human error and work 24/7.
Blockchain’s low costs give startups a chance to compete with major banks, promoting financial inclusion. Many people are looking for an alternative to banks because of restrictions like minimum balance requirements, low access, and banking fees. Blockchain can provide an alternative that uses digital identification and mobile devices, free from the hassle of traditional banking.
Blockchain stores information in a ledger with transaction information within each block, along with a unique hash that refers to the previous block. Every person within the network receives a copy of the transactions as well. Because of these features, blockchain technology is resistant to distributed denial-of-service attacks, hackers, and other types of fraud.
Without the threat of cyber attacks, the expense of conducting business is reduced, helping all parties involved save money and stress.
Digital currencies are the new wave of assets that rely on blockchain. Though digital currency is already in use, blockchain companies are lowering the barrier of entry and providing a seamless exchange of the most popular cryptocurrencies as a banking alternative.
Looking to the future
Though banking faces a lot of strict rules and regulations, more and more financial institutions are realizing the potential of blockchain technology and cryptocurrencies. As the major players in these industries conduct tests to discover innovative use cases and opportunities, we’ll begin to see more blockchain-based solutions for transparent, accessible, and reliable financial transactions.