Blockchain was specifically designed to enable trustless electronic transactions between two parties, without relying on a central authority for verification. The technology uses strong cryptography, a distributed network architecture, and a concept called “proof of work” to authenticate transactions almost instantaneously. The technology promises low-cost financial transactions and near real-time settlement.
While the interest in
blockchain technology has been unprecedented, it is not likely to have a meaningful role in payments ecosystem in Europe in the near future.
However, many experts emphasize the strength of this and similar new technologies that realistically have the potential to reshape the banking industry and payment ecosystem. Distributed ledger technology (DLT),
artificial intelligence (AI),
extended reality (XR) and
“DARQ”, as called by Accenture, are even individually powerful weapons in the fight for competitive advantage, but it is their combined effect that could be truly revolutionary.
Benefits of blockchain payments
Most of the benefits offered, or claimed, by the underlying blockchain technology, are, however, not applicable in some regions or environments. The technology is still not trusted by many mostly because of the
regulation inconsistencies. Nevertheless, benefits do exist and it is a question of time when will the big players start using them. Two of the current biggest and most researched are:
Anti-money laundering (AML) - Annually, money laundering makes up 2 to 5% of the global GDP—about $2 trillion (idmerit). This shows the real implications of money laundering for the global economy. Blockchain is being explored as a fraud and risk compliance solution that addresses some of the most critical problems with current AML procedures. Built on the blockchain, the new solution could leverage the inherent qualities of the blockchain in order to identify and prevent unauthorized transactions. And if combined with artificial intelligence, it could effectively run through strings of data to determine if money laundering activity is occurring. AI would be able to detect patterns in large volumes of data while adapting to changes in criminal activity over time with its machine learning capabilities.
Cross-border payments - Every step along the path of a cross-border transaction requires time and money, with the average cost of remittances sitting at 7%, according to a 2018 World Bank report. The industry has reacted through the creation of new faster payment initiatives, aimed at reducing delays in payments and standardising intermediary fees. Others have turned to distributed ledger technology (DLT) and blockchain.
When it comes to cross-border, IBM has already ventured into the field: