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The rising popularity of blockchain by financial institutions and other businesses is fueling the demand for smart contracts in almost every field. Smart contracts, based on blockchain technology, are used to automate the execution of an agreement between the participants without any third-party involvement. These contracts are based on blockchain, which is developed by different blockchain development companies or blockchain developers. The outcome of the agreement is certain for all the parties, and no time is lost because of it. It can be automatically executed when the conditions are met, automating the workflow by triggering the following action in the agreement.
Whenever an action is completed on the contract, it is updated on the blockchain, and because of this, no changes can be made to the action once done. The results of these smart contracts can only be seen by the participants that have been permitted in the smart contract. The algorithm of these smart contracts is pretty simple as they run on simple if/then else conditions that are coded on the blockchain. The actions are executed when the conditions are met in the code and are verified. These actions could include releasing funds, making payments, sending notifications, buying tickets, etc.
One of the best use cases of blockchain smart contracts is payments through smart contracts because security is of the utmost importance in the banking and payment industry. By leveraging the blockchain by the enterprises to automate the business payments with high security and transparency as the code of smart contracts is available for the users. Payment procedures have always been a hassle, but now the world is moving toward digitalization, and payment industries are adopting many new technologies to ease the payment procedures for them and the users.
With the adoption of digital evolution, people have started understanding and using payment methods via blockchain. Especially cross-border payments are made easy because there are no high amount of fees now for the users. Both commercial and local banks all around the globe have also started moving towards these new technologies. For financial institutions, the biggest impacts will be evident in the stock exchange, lending platforms, credit scores, digital identity verification, and many more have also been made easy by these technologies.
There are three big benefits of blockchain technology in the payment industry, due to which people are now preferring digital blockchain payments. One of them is that it records and validates each transaction that has been made on the platform by blockchain technology. This makes the transactions secure, and there is transparency between the users and the platforms. Another reason is that it does not require any third-party authorization, which means that there are no additional huge amount of feeses to make transactions. Decentralization is one of the biggest reasons for the popularity of these payment methods on blockchain technology. The users can connect directly through the platform, and the transactions are peer-to-peer.
The flow of transactions is unhindered in blockchain technology, and due to that reason, it is attracting more and more big firms and individuals to use blockchain for their payments. Certain things have been made easy by technology. Some of them are discussed below.
There are several use cases of blockchain in the payment industry that have solved some of the huge problems that users and platforms, both were facing. Some of these are discussed below.
The traditional payment methods available in the industry for international payments are secured but are very expensive and slow. Cross-border payments through blockchain technology enable the transactions of business-to-business and person-to-person payments across borders on vendor-blockchain-based payment rails. The multiple third-party involvements are eliminated which means that there are not several intermediaries in the process, which eventually leads to a huge amount of commissions by each of them. This reduces the transaction fees by 40-80%, which might vary depending upon the platform
Since blockchain cross-chain payments reduce the intermediaries, so the transaction fees are only between 2-3% of the amount to be transacted, and this also makes the process easier and fast. Numerous local and international banks have started adopting and implementing this technology in their businesses to make cross-border transactions easy, secure, and fast. Banks like Westpac, Australia’s largest bank, and many other popular names partnered with Ripple to make a low cross-border payment system.
Blockchain security is the comprehensive risk management of the blockchain network, reducing any chances or risks of fraud and scams. The basic phenomenon of blockchain technology that reduces the single point of failure on the network is decentralization. It makes peer-to-peer transactions by reducing the risks of fraud that can occur on any centralized platform. Blockchain security works in a way that when more and more customers become a part of these platforms, a node is added to the blockchain. And more the nodes on the blockchain, the more secure the network gets. Every node is connected to the previous node or contains a hash of it like a chain so that the blocks can be easily traced back even to the first node by its parent block or node.
Reduction of the single point of failure concept of the blockchain security makes the massive potential to reduce the cost, which makes the platform more stabilized. Another benefit of it is that in any case of failure, it can be located in which node exactly the failure is located. The failed node is fixed or replaced at a very fast speed, so the network is not disrupted. This also reduces the cost of fixing and the infrastructure cost.
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In the blockchain network, the data and privacy risks are highly reduced as it uses the digital blocks of the blockchain to store the data of each transaction and keep them secure. Since the new node added to the chain is connected to the previous ones, so it is almost impossible to disrupt one of them or hack it. The reason for that is if the node is hacked or tampered then the hacker will need to change that node containing the record as well as the ones that are connected to that particular block, so the detection of hacking or changing is not detected. The inherent properties of blockchain provide additional security for the data. The decentralization of the platform also secures the private data of the users on the platform.
The biggest problem in the centralized platform was the involvement of multiple intermediaries in the exchanges. The inefficient intermediaries on the platform increase the risk of failures and fraud. There was a lack of trust between the users and the platforms because of the inefficient monopolistic data utilities. This problem was reduced by the decentralized blockchain methods as the users can directly connect, but the platform makes sure that there is no fraud through the blockchain technology. The transactions are also kept safe and secured on the blockchain, and it also increases the products and services that are offered by limiting the reliance on intermediaries and utilities.
Blockchain payments are considered to be one of the most main drivers of achieving substantial cost savings in transactions. The lower cost of the transactions is provided by the blockchain only because multiple intermediaries are removed, so the high commissions by each of them at every stage are removed. It is also predicted that with future distributed ledger technology, the financial infrastructure costs will be reduced between $15 Million and 20$ Million by the end of 2022. Due to the blockchain technology used in businesses, their overhead costs are also reduced as it is a clear, tangible improvement.
In traditional payment systems, users have to perform multiple tasks to prove their identity online whenever they want to conduct a transaction. These verifications are complicated and time-consuming and sometimes include repeated logins, verification through video calls, face-to-face checking, and many more. All the verification steps are done whenever a user tries to make transactions with different service providers. But with blockchain technology, the user has to verify only once, and the credentials are saved for any future payments if the service provider is also of the same blockchain platform. It also enables the users to choose with whom they want to share their verified credentials, and they are more comfortable with that.
Blockchain in claims processing means that a user-centric platform is built, and the model is also focused to make it transparent, efficient, and a customer-focused model. Trust between the user and the platform is built due to it, and the claim process mostly means that they provide good customer service through which the customers can claim via a call to the center or the support chat on the platform’s application.
The international transactions that are done on the blockchain are settled in seconds instead of taking days like the traditional payment methods. They allow businesses, individuals, and other financial services to accept or transact payments without any need for authorization and verification from a third party.
The most significant advantage of blockchain payments is that it provides transparency and security at a very high level because the transactions are stored in blockchain technology which is highly secured. The transactions that have been done once can never be changed so the data on the blockchain can never be changed by hacking. The code of the smart contracts on which the payment platforms are based is available for everyone so that everyone knows how the platform works.
The payment innovation that blockchain has made is that it enables peer-to-peer transactions and the users are not dependent on any third party. This enables transparency between the users, so they know from whom they are doing trades. IThe decentralized nature of the blockchain payment platforms also enables easy convert fiat currency into digital assets and vice versa. So that the users can easily convert their assets whenever they want.
Most traditional payment system involves sharing of physical information along with transaction which puts people at risk. Anyone could turn around and become an enemy to unsuspecting users of traditional financial services. The blockchain enables digital payments and eliminates traditional methods. The users can easily make transactions through different wallet applications that are available easily on mobile. There would be almost no chance of theft of your assets through digital payments if you chose the right platforms.
Loan syndication refers to the loans that are given to individuals by different groups of lenders. These lenders are called syndicates. Syndicated loans in the traditional method are a slow process and also include a lot of problems. Blockchain enables that if one bank has completed the syndication process, then other banks don’t have to do it again on that blockchain. Due to this procedure, each bank involved can benefit by exchanging information through blockchain. This lowers the costs as well as significantly saves time for both parties.
A user always has control over their assets which means that the decentralized platform provides a solution that the assets are never owned by the platform. The user can control their assets as well as the transactions. The transactions are made or accepted whenever the user accepts or wants to make them.
Payments on the blockchain are secured, immutable, and variable as it is saved in the blockchain, which paves the traceability of the payments. It enables to trace the payments by its supply chain management. It improves the accuracy of tracing the assets and payments throughout their journey. With the supply chain, it knows when the transaction is made first and where it now resides.
Financial technology has been a rapidly growing field, especially in the last decade. The payment methods have completely changed due to it and had a huge shift worldwide to make money digitalized. On the other hand, blockchain is also a rapidly growing technology and, if implemented correctly, can do wonders. The industry is quickly investing in blockchain and financial tech to make payment methods based on the blockchain, so there is an evolution, and the payments are made secure and easy.
The decentralization of the payment platforms is set to revolutionize the payment industry and have a great and sustainable future for future generations. The future of international payments can also emerge with brand new technologies and systems, but there is a question to that where is the cash? If the central banks give the guarantee of the convertibility, only then it can work out, and the trust will rely on the actors that are on that network.
Blockchain implemented in financial services has a huge number of benefits. The banking and financial tech industry can be on the verge of moving settlements to the next level. An ever-rising wave of blockchain in the fintech industry shows that it can disrupt the banking industry and create something completely new and different. The complete digitalization of the money shortly the fintech so there are no risks of fraud, scams, or thefts.
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