Enabling alternative payments in a centralised world

by Ralph Payne, CFO, Copper In almost every nation around the world, financial institutions continue to play a critical role in our everyday lives, responsible for facilitating the majority of global economic activity. However, this far- reaching influence does not come without challenges. Although the centralised nature of financial institutions and government-backed currency is a stabilising force, it also results in an imbalance of power. By relying on intermediaries such as banks and other financial services providers, consumers inherently allow centralised institutions to amass even greater influence. And while fiat currency and bank-driven networks have done much to propel us forward, many believe it’s time to put power back in the hands of consumers. As a decentralised, intermediary-free technology, blockchain presents a promising opportunity to do just that. Blockchain and crypto-assets for payments Just as banks maintain networks for fiat currency, blockchain technology acts as the underlying framework for crypto-assets. However, unlike conventional financial institutions, blockchain technology transcends national borders. Although this functionality continues to generate a vast array of use-cases, payment solutions have seen considerable success. Since the emergence of Bitcoin in 2009, countless projects continue to explore infrastructure that aims to transform the way we transfer value. According to the Cambridge Centre of Alternative Finance, 49 per cent of all crypto-asset service providers facilitate payments. And while there have been many success stories, obstacles must be overcome before blockchain-based payment solutions achieve mainstream adoption. Why alternative payment networks? Alternative payment networks using blockchain technology offer several benefits to consumers and merchants. Because blockchain networks operate without an intermediary, transaction fees are typically much lower. For consumers sending or receiving funds, these fees can be 3 per cent or higher. For merchants, debit and credit card processing fees average 1.5 to 3.5 percent, taking a bite out of profits. In contrast, blockchain payment networks charge only a fraction of this amount. This dynamic is likely why 57 per cent of crypto-asset service providers offer merchant payment solutions. Also, traditional banks often require up to three business days to process a transaction, whereas blockchain-based payments can see settlement within minutes or even seconds. However, there are also market factors and technical limitations that remain inhibitive to future growth. The primary challenge to future blockchain-based payment solutions is scalability. VISA reports processing approximately 150 million transactions per day. In contrast, the Bitcoin network currently averages 350,000 transactions per day. Although this is problematic, next-generation blockchain networks such as IOTA and Ripple aim to improve scalability dramatically. It’s also no secret that crypto-asset prices are volatile. Because most fiat currencies are generally stable, they are a far more reliable store of value. The growth of alternative payment infrastructure The trend towards decentralisation appears poised to continue in the face of a centralised world. By removing intermediaries, consumers and merchants can retain more of their hard-earned money while accessing global payment solutions. As companies such as Facebook and IBM continue their foray into crypto- assets and the payment networks associated with them, mainstream adoption inches ever forwards. Surging institutional interest in crypto-asset markets further highlights this growing momentum. However, the systemic challenges must be overcome if we are to reap the benefits of this promising application of blockchain technology.

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