When Bitcoin first emerged out as an alternative to our traditional banking systems, many had imagined that banks would use the underlying technology (Blockchain) to improve their internal systems.
At press time, that dream is much closer to being realized than it was a decade ago, and at the least, the word blockchain is quite familiar to general population except those still living under a rock.
Blockchain-Based Payment Systems: Why Would Banks Need It?
The core idea is that Blockchain-based transactions are more secure, faster and cheaper than the methods banks have been using for the time immemorial. Cross-border payments that usually take 2 to 5 days to clear are a vivid example of this problem.
Recently, Ripple has already demonstrated that it can process the transactions faster than the current system at a fraction of the cost ensuring the very high-security level.
Another advantage of blockchain is the transparency that imparts of its transactions. Blockchain lets all the operations and balances be seen by all the users on the network, making it digitally impossible to be tampered or manipulated.
Yet, the problem remains in the adoption of the technology, since these banks are covered in regulatory red tape by making them very slow moving beasts. A real-world blockchain-based payment network would need years of extensive testing prior to its release to the public as banks are responsible for maintaining the trust of people.
A huge number of payments which banks currently handle are done either between human being and machines or human being and other human beings.
However, in the future, as more and more devices evolve to be smarter, the bulk of the payments are going to be Machine-to-Machine (M2M). For instance, Self-driving cars would make payments to automated parking places, fuel stations and tolls. Most of these transactions will be very small. Thus, it wouldn’t make financial sense to keep using the same outdated techniques for processing such payments.
This is where blockchain technology comes into effect. Banks are centralized organizations susceptible to an elite variety of hacks as well as security breaches. In recent years, a lot of such breaches have led to the identity theft of millions of people around the world.
By contrast, Blockchain is nearly impenetrable and need access to an innumerable node in the network for a successful attack. No surprise that most major banks are looking at the blockchain to make their payment procedure even more secure.
With topnotch benefits that blockchain offers, it’s no evident that banks are thriving to employ its advantages. MasterCard and Visa are already developing their blockchain-based payment networks. American Express too has added blockchain tech to its payment system. In the mean time, a lot of banks in Europe are funding blockchain research for developing industry standards.
It is good to see that a lot of payment channels are actively being developed by banks and several other blockchain startups. George Lucas, CEO of Cryptocurrency Internatiol Tanzania Limited (CITL) was stating in an interview that the company is also trying to focus on simplifying the payments mode as well as simplifying the money transferring process across the globe keeping in mind the associated legalities. He said the focus is on providing merchants with trusted payment systems based and depending on Blockchain Technology though XCON. He said the inspiration behind this is Ripple people who are dependably working with numerous Thai and Japanese banks for creating efficient cash transfers via blockchain applications. The future looks quite promising with blockchain-based payments.