How Can Blockchain Technology Solutions Solve Challenges Within A Traditional Payment System?
Blockchain technology has received a lot of attention due its potential in transforming an endless number of industries including a plethora of opportunities for the Banking Sector.
Blockchain technology has the potential to revolutionize the traditional payment system as we know it by making it more cost effective, efficient, and secure. The adoption of blockchain technology by the banking sector enables them to not only solve multiple issues that a traditional banking system would face but also capitalize on the trending digital currency market.
Here are several ways where blockchain technology would be able to solve challenges within the traditional payment system:
InteroperabilityOne of the main problems that the financial sector has faced was that their systems were not easily interoperable. Financial Interoperability within the financial sector had to be constructed with significant efforts for banks, financial institution, and money transfer operators to connect their unique systems with each other. This translated into long delays and high fees with each intermediary adding its costs.
However, Blockchain technology provides a solution to these problems as it can be integrated within the financial infrastructure easily, enabling the banking sector to provide cheaper, faster, and secure payments. “According to a Santander FinTech study, Blockchain technologies could reduce banks’ infrastructural costs by $15–20bn a year by 2022”. (coindesk)
Blockchain based payments for Consumers and MerchantsWhen it comes to the transfer of funds internationally it presents many challenges and issues for consumers. The transfer of funds goes through multiple intermediaries within the financial infrastructure taking multiple days to complete the transfer of funds with high fees/costs. Blockchain technology can solve these very issues as the individual would be able to make a direct transfer of funds over the blockchain resulting in faster and simpler transactions avoiding the traditional fees.
Another issue that can be addressed from a merchant’s point of view is that when an Individual makes a payment with a credit card, the merchant would need to bear the costs of the processing fees, cutting into their profits. Blockchain can help merchants avoid the miscellaneous processing fees by eliminating the various schemes and other intermediaries in receipt of payments via the blockchain.
SecurityWhat makes the blockchain so unique is its digitally distributed decentralized public ledger maintained by a multitude of computers making it nearly impossible to alter any information once it is on the blockchain without leaving any evidence. Therefore, the enablement of blockchain technology would make an excellent method for tracking all transactions on the blockchain eliminating the possibility of fraudulent activities and hackers.
Another benefit by enabling Blockchain technology would be that it would reduce human and system errors because Blockchain technology would allow trade, remittance and exchange between customers and merchants directly greatly reducing or eliminating the number of intermediaries and possible points of failure.
Building new revenue streamsCurrently Crypto Exchanges/Wallets are making billions in profit outside of the banking industry. The largest Crypto Exchange/Wallet Binance generated +$20 billion in the year 2021 (businessofapps) — Banks can tap into this profit pool by allowing their customers to buy, sell and store digital currencies. “The global blockchain in the banking and financial services market is expected to grow from $1.17 billion in 2021 to $1.89 billion in 2022 at a compound annual growth rate (CAGR) of 61.9%”(YahooFinance). Customers would be more confident to make digital currency transaction through a Bank as they would already have an account with the Bank making it convenient for them and have the assurance of dealing with a regulated entity.
ConclusionBlockchain technology has the potential to revolutionize the traditional payment system as we know it and is expected to reach a market value of $12.39 billion in 2026 at a CAGR of 60% (YahooFinance). Blockchain technology can easily be integrated within the financial infrastructure and payments like remittances and direct transfers through the blockchain resulting in cost effective, efficient, and secure payments and would let Banks capitalize on the ever-growing crypto markets.
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WadzPay is an interoperable blockchain-based payments ecosystem. The company was founded in 2018 in Singapore and currently operates in South East Asia, South Asia, the Middle East, and Africa.
WadzPay saw the potential for CBDC and Digital Assets to lead the next revolution in the payments industry: enabling faster payments, improvements in security, and cost-efficiency with optionality.