Can Blockchain Really Bust Through Its Barriers In The Payment Space?


Many of the pioneering cryptocurrencies leave much to be desired in payments.

Transactions can take minutes and even hours to confirm. Most cryptocurrencies are also too volatile to use by businesses. These, however, don't mean blockchain has no place in the payments space.

As a technology, it has proven to be quite revolutionary especially for financial applications.

While the aforementioned concerns may be largely true for most of the pioneering cryptocurrencies, newer projects have been working on to address these limitations. Banks and card companies are all working on their own blockchain payments projects.

Digital payments have become an increasingly competitive space as consumer purchases shift to e-commerce and mobile commerce. 726 billion digital transactions are expected to be made in 2020. Because of this, banks, card companies, tech giants, and blockchain ventures are all competing for relevance.

Blockchain and crypto technologies are also starting to evolve and mature. Further development may finally make crypto payments viable for daily use. Here are three issues that must be addressed by blockchain payments projects.

Businesses aren't particularly happy with crypto's volatility. Merchants that support cryptocurrencies have to be wary of their wild price swings. Product pricing in crypto must be dynamic enough to cope with fluctuations. Many smaller operations also find it impractical to keep money tied-down in cryptocurrencies since business expenses require fiat currencies to perform.

This is where pegged cryptocurrencies could come in. These coins match the price of fiat currencies to which they are pegged. For example, popular price-stable coins like Tether (USDT) and TrueUSD are US dollar-pegged. Using such coins for transactions allows businesses to avoid the volatility of coins like Bitcoin and Ether.

While these dollar-pegged coins offer a greater degree of stability, they are still subject to the fluctuations of foreign exchange rates for businesses in non-USD territories. A better solution is to have more coins pegged to the local currencies in the countries in which they are used.

Blockchain project T.OS seeks to provide such a mechanism. The venture is working on ways to allow each country to have its own stable coin. Through T.OS, consumers and merchants can go to designated exchanges where would be able to acquire tokens pegged to the local currency. These TOSP (Payable T.OS) coins essentially function as blockchain-based digital cash which can be used for just about any transaction within the territory.

Transaction speed has become central to customer experience these days. Card companies have been working on improving contactless and frictionless payments technologies in order to further hasten the checkout process.

However, pioneering cryptocurrencies aren’t exactly known for speed. Bitcoin, for instance, has been highly criticized for its slowness. It can take minutes for the network to confirm a single transaction. This could even take hours when the network is experiencing high volumes of traffic. This lack of speed makes Bitcoin ill-fitting for payment scenarios such as brick-and-mortar retail.

Newer blockchains have been working on speed and scalability improvements. Blockchain-based financial platforms Ripple and Stellar both seek to match or even exceed the scale of payment networks like VISA which has a capacity to process 24,000 transactions per second. Ripple boasts that its network is capable of handling twice as much. At these speeds enable transactions to complete virtually in real-time.

Blockchain-based payments must also offer customer experiences that make it easy for users to adopt. Fortunately, most of the crypto payment gateways feature interfaces that are easy to use. They now feature mobile and web apps. Also, gone are the days when users have to download clients and even run nodes of Bitcoin in order to receive and transfer funds.

Some even make crypto payments work with traditional and legacy payment systems. Services like Bitpay and Cryptopay, for example, offer crypto-backed debit cards which can be used in just about any point-of-sale system or ATM. SpectroCoin also offers virtual cards that can be used for online gateways that accept card payments.

These projects also offer merchant services and integrations with various point-of-sale and online shopping carts. By bridging the crypto payments experience with what’s familiar, both consumers and merchants would be able to readily adopt these solutions.

It does seem that crypto payments have progressed well enough to overcome many of the issues that plagued early currencies like Bitcoin. These improvements appear to put crypto payments ventures at par with what other payments services can offer technology-wise. Crypto payments even have the advantage of leveraging blockchain's inherent security features.

Transactions can easily be audited. Since blockchain payments are final, businesses can also avoid the cost of fraud and chargebacks.

What's ultimately needed for crypto payments to succeed is widespread adoption. A key advantage of traditional payment methods over crypto payments is their ubiquity. They already have established global networks and infrastructures and consumers are already familiar with how to use them. Crypto payments, in contrast, is still developing its ecosystem and its linkages.

The upside for crypto is the increasing tech-savviness of consumers and businesses. As users continue to embrace blockchain and crypto activities, crypto payments will eventually gain wider adoption. As it stands, however, the technology seems ready to overcome its initial barriers in payments.

While we can all agree that Blockchain in payments is the underlining idea behind the creation of Bitcoin, one can't help but wonder if we are really ready as a society to cut middleman like banks and governments altogether. These legally covered and organized entities have been around for decades and fact is - they still work.

Yoav Vilner is a world-recognized startup mentor (with accelerators such as Google, Microsoft, Yahoo, Telefonica), blockchain writer with outlets such as Forbes, Inc, CNBC and Entrepreneur, and a serial CEO & Founder of successful companies.

Source: FORBES