The rapid innovation in digital technologies has laid changes in several industries and payment systems are no exception. In fact, payment systems have benefitted the most from secure and fast IT solutions. One such innovative technology is blockchain technology. The blockchain technology is not new and sooner it will grow from its nascent stage. Although it has disrupted several industries, the payment systems industry has recently started leveraging its full potential.
As the global economy is now preferring cashless payments, there is a huge demand for secure and fast cross-border payment systems. There are new digital payment methods emerging, with blockchain in payments taking centre stage. This budding market is expected to grow rapidly, with Grand View Research estimating a market value of USD 1,431.54 billion by 2030.
There is a high preference for blockchain technology to utilize in cross-border transactions. Juniper Research predicts that the entire amount of B2B cross-border payments held on a blockchain will reach $4.4 trillion by 2024.
In this article, we will go through various aspects of how blockchain in payments can redefine traditional digital payments and have a huge impact on its security and robustness.
There are a plethora of ways by which a blockchain development company can help you transform traditional payment mechanisms. Here are several ways by which blockchain is impacting cross-border payments:
a. Lower Costs
The primary advantage of blockchain technology in cross-border payments is its ability to lower down payment costs. With blockchain, there is no need for intermediaries like banks, channel partners, etc. Thus, it significantly lowers the fees associated with cross-border transactions. For instance, in a traditional payment system, there are banking systems that charge fees for currency conversion, intermediary services, and payment processing.
On the other side, blockchain technology can execute transactions directly between the parties, reducing or eliminating these costs. Furthermore, blockchain technology employs cryptocurrency for cross-border payments. Cryptocurrencies such as Bitcoin, Ethereum, and stablecoins can be transferred internationally without the requirement for currency conversion, significantly lowering expenses.
b. Faster Transactions
In traditional cross-border payments, it usually takes several days to process. If there are multiple currencies involved with different jurisdictions, the process gets elongated. In blockchain-based cross-border payments, there is near-instantaneous settlement of transactions. Since blockchain operates on a decentralized network, transactions are performed in real time, and the intermediaries are not required to verify and clear payments.
c. Provides Transparency
Transparency is an important aspect of traditional cross-border payments. It is quite challenging to track the status of a transaction. With blockchain technology, this challenge no longer persists, as blockchain provides a transparent and immutable ledger of all transactions. Every participant in the blockchain network has access to the same information. Thus, the user can track the progress of payment in real-time.
There are fewer chances of disputes and fraud with this transparency. This level of transparency can help organizations build confidence with their partners and suppliers while also improving compliance with regulatory regulations.
d. Improving Security
Security is the utmost concern in every payment whether traditional, digital or cross-border. In cross-border payments, the risk of fraud and cyberattacks is quite high. Blockchain can address all these challenges. Its decentralized nature along with advanced cryptographic techniques, make it highly challenging to hack or fraud.
Each transaction on a blockchain is encrypted and connected to the preceding one, resulting in a chain of blocks that cannot be changed or tampered with. This immutability ensures the integrity of transaction data and adds a layer of security to cross-border payments. Furthermore, the implementation of smart contracts—self-executing contracts with the terms of the agreement explicitly put into code—can automate and enforce payment requirements, thereby increasing security.
e. Financial Inclusion
Another major impact of blockchain technology is that it promotes financial inclusion, particularly in developing countries. The traditional banking systems often ignore a major portion of the population due to the high operating costs of accounts, limited access to the banking infrastructure, and strict regulatory requirements.
How Blockchain Works in Payment Systems?
Blockchain technology revolutionizes the traditional payment industry by developing a secure, transparent, and efficient ecosystem for managing payment transactions. There is a decentralized and distributed ledger in the blockchain payment systems. This digital ledger records transactions across a huge range of computers. So, there are no intermediaries which reduces transaction costs and improves security.
The creation of a transaction begins the process. A user has to send a request to the blockchain network to initiate a transaction. This request is then broadcast to a network of nodes. The transaction undergoes validation using consensus mechanisms such as Proof of Work (PoW) or Proof of Stake (PoS). After validation, the transaction is combined with others to form a new block.
After the consensus from all nodes, the new block is added to an existing blockchain. There is a unique cryptographic in each block along with the hash of the previous block, ensuring the chain’s integrity.
Since the ledger gets updated across all nodes in the network, there is high immutability and transparency. This complete mechanism makes blockchain technology highly reliable for modernizing payment systems. It ensures security, transparency, and efficiency.
Future of Blockchain in Cross-Border Payments
As there is a lot of potential in blockchain technology, we can expect huge growth in its impact on cross-border payments. Here are some major trends and developments that we can expect in the future:
a. High adoption by financial institutions
As bigger financial institutions are realizing the potential and benefits of blockchain technology, we can expect an increase in adoption. There are many banks, payment processors, and other financial institutions that are exploring blockchain to improve the efficiency, security, and transparency of cross-border payments.
b. Integration with traditional payment systems
The traditional payment systems will sooner be utilizing blockchain technology for highly efficient and secure cross-border payments. Hybrid solutions that combine the benefits of blockchain with the dependability and familiarity of conventional payment infrastructure may emerge as the dominant option for cross-border transactions.
c. Regulatory Developments
We are still witnessing the evolution of regulatory frameworks for blockchain and cryptocurrencies. These developments will play an imperative role in the adoption of blockchain-based cross-border payment solutions. The government and financial bodies will continue working on guidelines and standards that will address issues like anti-money laundering (AML), Know-your-customer (KYC), and consumer protection.
d. Innovation in Digital Assets
Digital assets like stablecoins and central bank digital currencies (CBDCs) will have a huge impact on cross-border payments. These assets will facilitate faster, cheaper, and more stable cross-border transactions
Wrapping Up
In this article, we have understood how blockchain technology can play a pivotal role in revolutionizing traditional cross-border payments. It can address the underlying issues like high costs, slow processing times, lack of transparency, and limited accessibility. Its decentralized nature and secure nature will facilitate faster payments with high security.
At A3Logics, we provide the best blockchain consulting services to our clients along with highly advanced blockchain-based solutions. As a top-notch app development company, we have expertise in developing apps with advanced features and functionalities. Let us know your requirements.