This year, we will finally start to see some of the promised potential of blockchain technology, as national governments and major banking and payments players begin to roll out their blockchain-based initiatives.
The financial services industry has been awaiting the full-scale deployment of services based on blockchain since it was first realised that the ledger technology had far greater potential applications than it was being used for in the bitcoin network. The payments industry is now seeing pilots of blockchain technology, focused on the area of cross-border money transfer, but the wider applications of the technology as a trusted, fast, and secure means of transferring information are also being realised by governments such as Canada’s, and major banks such as State Bank of India.
The fintech conversation is no longer about bitcoin. Bitcoin remains a hot topic in the industry, though while its price remains high it is no longer a realistic option for consumer or commercial payments – it is now seen as more of an asset than a means of fund transfer. Bitcoin’s volatility – and that of other cryptocurrencies – also makes it unappealing to most regulators. Most recently, China banned cryptocurrency exchanges in 2017 (and may now be looking to further regulate against “exchange-like services”), and South Korea is reportedly considering a similar ban.
Without regulatory support, banks mostly want to avoid cryptocurrencies – and particularly bitcoin. Even digital disruptors such as Stripe are moving away from bitcoin – with Stripe citing not only its price volatility but also the slow and expensive processing on the bitcoin network, as the limits of bitcoin mining (and thus, transaction processing) have been reached.
Blockchain technology, on the other hand, is being rapidly embraced by mainstream payments companies. The technology’s most obvious application in payments is to make cross-border transactions faster, cheaper, and more secure. Ripple is the biggest success story in this area, winning partnerships with Axis Bank, IDT and MercuryFX, and even MoneyGram to build faster, better systems for international fund transfers. Domestic payment networks – particularly in countries with instant payment infrastructure – are less in need of blockchain as a solution, but there is an argument to be made for a centralised blockchain ledger in providing greater security and potentially transparency in money transfers.
At its core, the technology is about the transfer of information securely within a system – and that can and will be applied to far more than the movement of money. These applications are now in pilot phase, and full launches from the front-runners are likely before the end of the year. These companies will be able to leverage the advantages of blockchain technology to gain a real edge on their rivals, and the market will move to follow.