Blockchain Provides the Real-Time Payments Customers Demand
6 min readMeet evolving customer demands by adopting blockchain payments
In an increasingly digitalized world, customer expectations are on the rise. They can already order food and transportation instantaneously and have entire libraries of music, books, and videos at their fingertips. As a result, they are demanding similar instant gratification from their banks. Yet, in most cases, payments are still not made and settled in real time. From enterprises to small businesses and individuals, it is essential for your customers to not only know exactly how much money is in their account at a given time but be able to deploy it.
Blockchain and distributed ledger technology (DLT) represent a turning point in payments and settlements. The technologies can be used to eliminate obstacles in payment processing that take time and cost money—giving early adopters an advantage in meeting growing customer demand for real-time payments.
In the current system, payments, particularly cross-border, are inefficient and costly. Every day, as trillions of dollars make their way around the globe, multiple steps and intermediaries are required before the money finally arrives at its destination. As payments are processed, fees accumulate, and settlement can be subject to delay due to a variety of factors including:
- Different time zones and hours of operation for manual processes
- Different data formats that need to be recognized/transformed
- Compliance checks in different jurisdictions
- A monitoring process to avoid fraud, which is sometimes done in batches
Financial services institutions that do not address the demand for real-time payments will lose market share as customers of all sizes move away from the antiquated payment processing system.
The path to achieving real-time payments
The ability to quickly settle transactions is no longer just an idea that your institution should wait to implement. Near real-time payments are quickly becoming a reality thanks to cloud solutions which:
- Easily integrate with banks, FinTech, insurance carriers, and technology providers to manage identity and check for fraudulent and other unusual activity.
- Scale to fit any volume of transactions.
Using blockchain to process payments allows settlement to be done 24/7 throughout the year. There is no more waiting for batches to be monitored and approved. Society continues to move toward account-to-account payments, which can occur at any time of the day because blockchain eliminates central authority and provides the foundation for peer-to-peer transactions. Institutions are already being pulled to networks that offer such advantages.
The Clearing House developed its RTP network to facilitate faster payments in 2017 and 60% of US banks have since connected to it. Similarly, the U.S. Federal Reserve is slated to unveil its FedNow Service in 2023, which will also offer near real-time settlement. While these are steps in the right direction, both services still act as intermediaries during the payment process, leaving in place one of the primary obstacles to real-time payment.
The promise of blockchain payments
Blockchain’s business value add (BVA) is projected to reach $176 billion by 2025, and it’s clear where the value lies. Along with DLT, blockchain presents a new way of processing and clearing payments that could revolutionize the system. The technology can be used to:
- Establish customer identity and meet Know Your Customer (KYC) guidelines
- Eliminate intermediaries in settlement
- Provide secure and unchangeable records of transactions
The primary function of processing payments is recordkeeping and ensuring that each party’s ledgers agree when money is transferred. With blockchain, the ledger is replicated and distributed among several nodes, all of which update the instant a change is made. That’s why no intermediary is required to facilitate or verify the transaction. There is no dispute over records because each time a transaction is approved, the decentralized ledger creates a hash in the blockchain that everyone on the network can see. Such features are particularly beneficial in international payments, where money gets wrapped up in a time-consuming process that incurs an average charge of 7%.
Another advantage of DLT is that there is not a single point of failure. Financial records that are stored by a bank are vulnerable to hacks and DDoS attacks which means if a vulnerability is exploited, customer data could be stolen or become inaccessible. To alter data on a blockchain, a hacker would have to access most of the ledgers on a network to approve a change—an act that would require a vast amount of computational power and extraordinary access.
Blockchain payments offer significant improvements in speed, security, and cost. With such benefits, it’s only a matter of time before widespread adoption of blockchain, which could mean your business will benefit from being an early adopter.
Top challenges to implementing blockchain
1. Integration
Integration with blockchain and Web3 ecosystems is a challenge that needs to be properly addressed. Bridges must be developed to connect blockchains to one another and support the exchange of different tokens from one blockchain to another. As such, there are several APIs that need to be integrated to facilitate transactions. Additionally, digital wallets are needed to connect to accounts, enable payments, and exchange digital assets for fiat.
2. Security
Cryptocurrency, stable coins, and tokens are digital assets that can be traded on the blockchain. However, there must be architecture in place to create and adopt digital assets, as well as secure their transactions and store and manage the private keys used to access them. Involvement of security experts with a deep understanding of crypto best practices is required to deliver a comprehensive solution that protects customers’ assets.
3. User experience
A comprehensive user interface and user journey are among the most important aspects of customer satisfaction. Blockchain enables fast payments across the globe. However, the mere mention of the term “blockchain” can intimidate new users. Therefore, service providers need to be ready to improve the user experience and deliver new features to keep up with the evolution of Web3 technologies.
AWS provides infrastructure to accelerate the implementation of blockchain payment solutions. Cloud services foster agility and provide an effective technological foundation to enable integration and security at scale and deliver new features to end users in a timely manner. As a cloud provider, AWS uses Ethereum and Hyperledger Fabric to host their distributed ledger.
Banks and FinTechs have worked with SoftServe to develop blockchain solutions on AWS by building infrastructure on the cloud platform to enable connectivity to networks, key storage, and digital asset custody. Recently, clients have needed front-end and back-end development to create an NFT marketplace, as well as the development of an API and solution-as-a-service to create, manage, and store customized tokens.
As your next-generation digital partner, SoftServe has a dedicated team of blockchain experts who can help your business lay the groundwork for facilitating blockchain payments by providing:
- Infrastructure
- Clearing and settlement solutions
- Payment capabilities
- Integration