Blockchain Payment | International Payment Processing Services

Increasing popularity and curiosity around blockchain worldwide makes us want to explore its application in different fields. One such very useful application is making payments through blockchain. In this article, we are going to learn in detail about the concept and current developments in blockchain payment systems around the world. 

Blockchain in payments

Blockchain technology has gained considerable credibility for its transparency, security and ease of use since its inception. Different industries have begun trusting and adopting blockchain technology for better functioning. Blockchain is now successfully used in domains such as cryptocurrency exchange, entertainment, healthcare etc. However, the most sought-after application of blockchain is using it as a backbone of payment systems. 

Blockchain is the technology of the future and it can revolutionize the way we make payments on a day to day basis. We as a generation have seen our payment system go completely cashless over the years. In the coming years, another such transition is about to take place where the centralized, middleman-based payment platforms are going to get replaced. Replacing them will be a decentralized, peer-to-peer system i.e. blockchain.

Stakeholders see a promising future for blockchain as a mainstream payment system as it is better than the existing payment methods in many aspects. Further in this article, we will see in detail the limitations that current payment methods have and how blockchain proves to be better on all those points. 

Why do we need a blockchain payment system?

Before we begin to explore blockchain payment systems, it is important to know why we need a new payment system altogether. Well, the points given below answer this question.

• To ease the cross-border payment process. Minimum intermediaries and reduced processing time for payments. 
• To reduce flat fees charged by banks or third parties on transactions.
• For enhancing the security system (securely store identity data).
• To reduce transaction time and intermediaries involved.
• To eliminate possibilities of fraud and identity theft.

The main reason behind this need is a few major pain points of traditional payment and banking methods. Banks spend a lot of time and money in storage and management of customer identity data which is still highly prone to theft and misuse. Banks need third-parties for verification and facilitation of payments.

Cross-border payments are also a tedious task as it involves a lot of intermediaries and takes about 2-10 days to process. A robust blockchain payment solution has the potential to make the experience better for both the users and service providers. 

How does blockchain payment work?

With the complete digitization of payment systems in recent times, there came a few challenges with it like risk of fraud, identity theft, high transaction fee etc. This is where everyone looks at blockchain with hope as it can minimize the role of third party verification in payments as well as the processing time for traditional bank transactions. The market trend requires a faster and absolutely secure payment network that can enable a smooth exchange of money of all sorts (e-money, cryptocurrency, cash etc.). Many tech giants are working to implement such technologies lately.

Let us understand the working of the blockchain payment framework by taking an example of IBM’s blockchain payment solution for banking. 

IBM Blockchain payment solution: World Wire 

IBM’s World Wire is a blockchain-based universal cross-border payment solution which aims at giving users a hassle-free payment experience. World wire is a platform using blockchain technology to facilitate international payments in a fast and easy manner. The current cross-border payment system is complex, costly, and slow which makes it an exhaustive experience for the user.

IBM, a blockchain solutions pioneer, claims to make the payments ecosystem better by saving 10-20% in operational and management cost. And even about 55-85% reduction in overall transaction costs of cross-border payments.

The prominent features of the blockchain-based solution are:

• A real-time single network for cross border payments
• A simple API functional 24/7 through which one can carry out transactions of any size, origination, destination, or asset type. 
• Secure data storage and management of user credentials.
• Lesser intermediaries involved (Sender, sender’s bank, IBM blockchain payment solution, receiver’s bank and the receiver)
• Secure and standardized messaging and clearing channel. 

Advantages of using blockchain in payment systems

Using blockchain technology for payments most certainly has a lot of benefits. Key advantage points are discussed in this section.

1. Less or no intermediaries: Traditional payment methods i.e. the ones that we use presently have a few drawbacks. Payments via Visa, Mastercard, PayPal etc. involve a number of intermediaries making the process a little cumbersome.

The transaction passes through several phases such as the acquirer, payment gateway, exchange (Visa, American Express etc) and issuer. This makes the process costly and time-consuming. Blockchain minimizes or even completely eliminates the need of intermediaries to authorize a transaction because it is a secure network in itself. 

2. Safe and quick payments: Constant rise in the number of cybercrime cases worldwide is a big reason for banks to worry about the safety of money and user data. It calls for a system so secure that hackers couldn’t find a way to disrupt it. Blockchain is again a perfect solution to this problem as the speed and efficiency with which transactions take place here make it unhackable.

The key contributing factors making blockchain so safe and fast are it being a decentralized network, cryptographically encrypted information, double key user encryption, and node verification system. Payments through blockchain will also be quicker than traditional methods. It can facilitate a local transaction within seconds and bring down international payment time from 2-8 days to a few minutes. 

3. User anonymity and transparency: According to a study made in 2018, the financial sector bore a loss of $4 billion dollars due to theft of personal user and business data from financial firms. The blockchain system is unique in a way that ensures complete user anonymity and at the same time guarantees transparency. It allows you to stay anonymous while remaining 100% authentic in the network. Without exposing your personal details, blockchain network offers complete transparency by adding every transaction detail into the digital ledger. 

4. Cost-effective: As we have seen before, more intermediaries between two points in a transaction means greater cost of that transaction. In traditional banking systems, a cut from the overall transaction cost goes to each intermediary making the process costlier. Blockchain is yet again a solution where it reduces the intermediaries participating in the transaction thereby reducing the overall cost. 

Use cases of blockchain payment system

Blockchain payment system is drawing a lot of attention for its promising performance and applications. One relevant application or use case we have all seen and heard of is cryptocurrency trading. Blockchain networks are successfully hosting cryptocurrency exchanges such as Bitcoin, Ether etc. 

Other use cases of using blockchain for payment systems are enlisted below:

• Automated smart contracts
• Peer-to-peer (P2P) transfers
• Digital identity verification
• Cross border payments
• Trade finance

Future prospects of blockchain payments

Experts believe that blockchain will most likely bring a fundamental change in the banking and payment ecosystem by 2025. Infact, there are companies such as Ripple, Stellar, Ivy, Zcash etc. that have already launched fully functional blockchain payment options for their users. Based on the current rate of acceptance of this new payment concept, it is most likely to become a mainstream payment option in near future. 

However, proper implementation of blockchain as a backbone of payment solutions requires addressing some challenges first. The current challenges faced are its high technical standards and requirements, lack of proper governance and regulations, difficulty in canceling payments, ledger accountability etc. 

Conclusion 

In this article, we understood the concept of blockchain payment systems and how they work. We also covered real-life working examples of IBM’s universal blockchain payment solution. Learning about the advantages, challenges and use cases of blockchain payments made our understanding more thorough on this topic.