3 Reasons Why Payment Service Platforms Switch to Blockchain, Facilitating the Adoption of the Tech

Several giant payment service providers are flocking to using encrypted decentralized technologies including blockchain to create payment platforms that can facilitate and support fast, secure, cheap cross-border payment processing services which offer real-time validation of transactions minus the involvement of third parties.

In the past year, digital and mobile payments have accounted for about 45% of the entire e-commerce payment transactions, and the market is estimated to grow to more than 51% in 2024, according to the data by Statista. 

The traditional payment methods used in e-commerce transactions including credit cards, debit cards, bank transfers, cash on delivery, postpay, charge and deferred debit card, buy now pay later, direct debit, prepay, and others, didn’t perform very well during the pandemic. These options when combined accounted for 52.2% in 2020 and are expected to decrease to hit about 48.2% by 2024.

A new age for payments

The Covid-19 pandemic has helped the public and the companies to realize the potential of blockchain technology, and now giant payment platforms Temasek, DBS Bank, and JPMorgan Chase & Co., have decided to partner together and design an effective DLT-powered infrastructure dubbed Partior for payments, trade plus foreign exchange settlement. The platform will help to reduce existing frictions and time delays in currency settlements, trade and international payments.

With blockchain technology, payment service providers don’t have to depend on intermediaries to clear the transactions with a huge fixed yearly cost for membership and other expenses at the clearinghouses. Blockchain-based payment network favors high-volume processors.

Unlike the traditional payment infrastructure, a blockchain network helps a user to have full control over the fees being charged for every transaction made, hence making it cheap and profitable. It has been taking days to clear traditional transborder wire payments that carry fees as high as 10%. DLT can reduce the retail remittances and corporate payment costs by 50%, as per the study by Ripple.

In Japan, about 30% of the banks use a DLT-powered network dubbed RC Cloud from Google-backed financial tech (fintech) Ripple to conduct both domestic and international payments. 

Generally, blockchain-based payment solutions can boast of three main benefits they offer as compared to traditional platforms.

Security

A DLT is a series of blocks that records info in hash functions with timestamps and the information on the blockchain cannot be altered or tampered with. The entire blockchain database is safe and secure hence the payment platform or user remains with full control of his data, even if he is attacked or hacked. Blockchain facilitates secure transactions because it deploys encrypted distributed ledgers which offer genuine instantaneous validation of transactions unlike other traditional payment methods like drafts that can be stolen or forged.

Speed

The speed of blockchain transactions is a bit higher when compared to many of the traditional payments. For instance, the current Bitcoin (BTC) block generation time is about 600 seconds, and in this period, BTC can average nearly 2,759 transactions. BTC blockchain can conduct about 300 transactions per minute. 

Engineers are now doing everything possible to increase the speed of a blockchain. They are designing tools that can increase the block size and reduce block time. On the other hand, traditional payment systems such as negotiable instruments like cheques, documentary credits, can even take a week without being cleared. On average, one needs to wait for about 24 hours to pay or get paid using a negotiable instrument.

Cost-effectiveness

Deploying distributed ledger technology (DTL)-powered track-and-trace tech, businesses can lower down costs and expenses on their end and soar profit margins by improving their supply chains and other activities involved in the business.

The blockchain-based network has made it possible for banks to make real-time payment transactions at a considerably lower cost. Some of the Japanese banks using blockchain include Resona Bank, Sumitomo Mitsui Banking Corporation, Nomura Trust and Banking, Mizuho, AEON Bank, MUFG, etc.

Generally, blockchain is here to help businesses, banking institutions and other payment service providers to bypass challenges presented by the present standard sequential means of processing and handling international payments. Therefore, blockchain-based platforms are better than traditional ones based on security, speed and cost.