Developing Advanced Digital Payment Solutions with Blockchain

Published : Dec 24, 2020

Blockchain in payments.jpg

  • The applications of blockchain technology are not limited to powering cryptocurrencies only. Blockchain app development goes beyond that to provide advantages and solutions capable of transforming the status quo of a range of industries, including financial services, healthcare, automotive, and more. 

    In industry most ripe for disruption, the financial services, and especially payments (digital transactions), blockchain serves as an underlying technology at infrastructure levels of business operations and processes. As a result, it enables potential cost savings, productivity gains, enhanced customer experience, and more in transactions across a network. 

    Thereby, established financial institutions are investing millions of capital to research emerging technology. It points towards its enticing potential for the global financial market. In business, areas like supply chain processes, trade finance, investment banking, and global payment services, blockchain strengthen decentralize paper-based and manual transactions systems 

    For Global Payments Systems, Using blockchain  

    Blockchain is now changing services for payments. Via conventional money transfers, consumers and businesses spend hundreds of billions of dollars globally every year - a slow, time-consuming, and costly operation. Many banks have started using blockchain technology to move funds as an alternative platform. J.P. In February of 2019, Based on blockchain-based technology, Morgan tested JPM Coin to allow for the instantaneous transfer of payments between institutional accounts.

    In September 2019, Wells Fargo made a similar announcement to pilot its currency, called Wells Fargo Digital Cash powered by blockchain, to help transfer cash in real-time across borders and branches. Soon you can see more of these mainstream banks depending on their payment services from the blockchain.

    Also, Read | Making Secure Online Payments with Blockchain-Based Crypto Wallets

    Building Blocks of Blockchain for Payments Services

    Cryptographic Mechanisms

    Blockchain transactions are signed cryptographically to avoid tampering, making it a stable and trustworthy network. Also, in the ledger, an auditable trail of all the transactions is kept. These features reduce the need for global payments from a trusted middleman or intermediary banks that financial institutions rely on. The use of an intermediary contributes to the expense and creates a pause in the processing of payments.

    Cryptocurrency & Wallet Development

    A cryptocurrency (Crypto or Token) on blockchain platforms is a mechanism for exchanging funds amongst parties. It is electronically generated and placed in a cryptocurrency wallet. Crypto has a supply/demand-based intrinsic value. In comparison, financial institutions define Crypto used as "Stable Coin" in their blockchain platforms, with a 1 to 1 relationship between a fiat currency and the token value. One US dollar is equivalent to one cryptocurrency, for example.

    Data Protection and Privacy

    Unlike "permissionless" blockchain networks, where transaction information is made available from a data privacy point of view to all in the network, rendering it unsuitable for controlled financial institutions. 'Permitted' platforms such as Hyperledger take into account financial institutions' data privacy rules, information protection & regulatory requirements. Further, the shared ledger provides enhanced access control in the permissioned blockchain to ensure transactions between parties.

    Also, Read | Public and Private Blockchain | an Analogy to Help You Choose the Best

    Smart Contract Development

    A smart contract is a piece of software that includes a pre-defined set of rules. It executes during the transaction phase to ensure that parties all meet requirements to complete the transaction, as specified by the business process. Any business validation to be carried out outside the payment system from a payment perspective, such as the permissibility of a certain form of transactions or potential duplicate checks, can be done by a smart contract solution from a payment perspective.

    Applications for Blockchain in Payments 

    In the payments sector, Blockchain has numerous uses, including the use of cross-border payments, foreign exchange (FX) settlements, trade settlements, card payments, and more. Here we are going to discuss some of these.

    Card Payments

    Card payments for shoppers are an easy, cashless payment choice, but it also means a high transaction cost for merchants. It is due to involved intermediaries that we can classify as acquirers (bank merchants), payment gateways, exchanges (Visa/Master), and issuers (cardholders bank). There will be no need for too many authoritative bodies because there is no central authority with blockchain technology. It will assist retailers who will have to pay less for service costs, transaction fees and can give consumers higher discounts in exchange.

    International Reconciliation

     SWIFT completed a (PoC) with 34 global banks to determine whether Nostro reconciliation could be used for Distributed Ledger Technology/Blockchain. Nostro/Vostro accounts come in use where a bank in certain countries does not directly offer services but does so through a correspondent bank. This PoC concluded that, if implemented globally by all the participating banks, blockchain could effectively facilitate automated real-time liquidity tracking and reconciliation.

    Cross-Border Transactions

    When traveling from one country to another, cross-border payments have to move through many banks. It boosts the fees involved in making them. Mastercard has developed a blockchain-based solution that connects the sending and receiving bank directly without intermediaries with its current settlement network. However, without using any cryptocurrency, they will achieve this. They will also enable funds transfers as fiat currencies. Likewise, FinTech provider R3 is working with 22 banks to develop a solution for real-time international payments that use Distributed Ledgers to allow cross-border payments that are quick, efficient, and cost-effective.

    Also, Read | Is Stellar Blockchain a Right Fit for Cross-Border Payment Solutions

    Trade Finance

    Multiple intermediary banks finance trade finance between a buyer and a seller, whether domestic or intermediary.  They do so by using various financial products that allow a trade to take place. The functionality provided by blockchain technology is smart contracts for trade finance.

    These are self-executing contracts, comprising the terms of exchange on the blockchain as code. These execute payments automatically when particular parties meet specified business conditions. The receipt of a shipment of items may be an indication of a situation.

    Integration of Payment Systems with Blockchain Platforms 

    The controlled financial industry has several competing blockchain platforms available. Hyperledger Cloth, Ethereum Quorum & R3 Corda are the more common ones. Each of these solutions takes multiple approaches to address the complexities of business integration. They offer a wide range of choices for users of the network to implement their payment applications.

    What's Next

    Cryptocurrencies are the most common and widely discussed blockchain application. However, there is no denying that there is a wide variety of applications worldwide throughout different industries. Various names like Mastercard, Visa, Oracle, and IBM in the finance and technology industry have invested in blockchain. They are building their version for use in some of the above applications

    We still need to have a standardized system implementation. Also, some of the words are too difficult for a non-technical person to understand. However, it is very likely that businesses will adopt blockchain and eventually become part of our daily lives. Connect with our blockchain development experts for more information. 

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