FX International Payments
By Megan Doyle
Despite hundreds of implied use cases and billions of investment dollars poured into the technology, McKinsey & Co. notes that few practical, scalable applications have emerged.1 Now, some are re-thinking blockchain for payments as a solution in search of a problem instead of the game-changer it has been considered.2 At the same time, other observers suggest blockchain payments technology still has a bright future.
Blockchain’s early stages of development were led by the financial services industry with the intent to streamline payments processes, enhance trade finance, reduce fraud, and more. Yet blockchain remains an “infant” technology, according to a recent McKinsey report.3 Save for a few exceptions, such as Ripple real-time payments, many blockchain payment projects have failed to launch.4
But why the lack of progress? For one, some experts say the technology is still too complex, expensive, and unstable to garner the support needed to fulfill its potential.5 Some banks, financial services, and payments companies are hesitant to back blockchain due to the sheer challenge of doing so, especially as many organizations are already focused on broader IT transformations like cloud migration and mobile app development.
Another factor that could be holding blockchain payments back is the simultaneous emergence of other new transformative payments technologies. SWIFT gpi, for example, allows near real-time cross-border payments without blockchain. And more solutions may appear, considering $7.2 billion was invested in U.S.-based payments and lending fintech companies in 2018.6
Further, the McKinsey report notes that many proof-of-concepts have added little, if any, improvements over existing payment systems, and some have even led to more questions about blockchain than solutions. Thus, observers are beginning to question whether blockchain payments can be strategically implemented in not only a viable, scalable way, but in a way that actually solves the problems of current payment technologies.
Yet some experts herald 2019 as the year blockchain technology will become the norm. Several major corporations plan to launch blockchain solutions in 2019, including a secure crypto-asset storage infrastructure, the Intercontinental Exchange’s blockchain-based digital asset exchange, and Walmart’s food supply tracking system.7
In addition, several start-ups are developing blockchain-based smart contracts to deliver secure, trackable legal agreements—some of which also incorporate blockchain payments. For example, OpenLaw and Rocket Lawyer are working together to track legal obligations of freelance contracts with blockchain, with the ability to automate cryptocurrency payments once the contract’s conditions are met.8
And, according to experts, central banks in at least 15 different countries are seriously considering launching national digital currencies as cash use declines and digital technologies like blockchain payments systems improve.9
Whether blockchain will revolutionize the payments industry remains uncertain, but many organizations are still exploring the technology’s possibilities with new approaches.10 Some financial institutions, for example, are honing in on fewer use cases, scrutinizing blockchain payment experiments and proof-of-concepts, and carefully addressing governance and compliance strategies.11
Other organizations still set on blockchain are combating disillusionment from overhype by using the term “distributed ledger technology” in place of “blockchain,” notes a recent Forrester report.12
While such strategies may help blockchain progress, experts suggest the key to success may be finding areas where blockchain represents the simplest solution while still delivering value. According to McKinsey, businesses may wish to carefully consider these three principles prior to investing in blockchain payment systems: start with a problem to solve; build a clear business case and target ROI; and commit to a clear path of adoption.13,14
Despite such new strategies and an influx of use cases expected in 2019, McKinsey says “feasibility at scale is likely to be three to five years away” due to technological limitations, lack of standardization, and the fact that many organizations still need to digitize their assets in order to benefit from blockchain.15
The future of blockchain payments may not be as bright as initially perceived, but it’s too soon to call it bleak. As a concept, blockchain still holds the potential to revolutionize the payments industry, and beyond. But viable applications have yet to be realized despite abundant investments and experiments. Regardless, some experts still think practical blockchain use cases are on the cusp of breaking through, and predict 2019 will be the year it happens.
Megan Doyle is a business technology writer and researcher based in Wantagh, NY, whose work focuses primarily on financial services technology.
1. “Blockchain’s Occam Problem,” McKinsey; https://www.mckinsey.com/industries/financial-services/our-insights/blockchains-occam-problem
2. “Blockchain beyond the hype: What is the strategic business value?,” McKinsey; https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/blockchain-beyond-the-hype-what-is-the-strategic-business-value
3. “Blockchain’s Occam Problem,” McKinsey; https://www.mckinsey.com/industries/financial-services/our-insights/blockchains-occam-problem
7. “In 2019, blockchains will start to become boring,” MIT Technology Review; https://www.technologyreview.com/s/612687/in-2019-blockchains-will-start-to-become-boring/
10. “Blockchain’s Occam Problem,” McKinsey; https://www.mckinsey.com/industries/financial-services/our-insights/blockchains-occam-problem
12. Predictions 2019: Distributed Ledger Technology, Forrester; https://www.forrester.com/report/Predictions+2019+Distributed+Ledger+Technology/-/E-RES144635?utm_source=fortune&utm_medium=pr&utm_campaign=predictions_2019&content=blockchain
13. “Blockchain beyond the hype: What is the strategic business value?,” McKinsey; https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/blockchain-beyond-the-hype-what-is-the-strategic-business-value
14. “Blockchain’s Occam Problem,” McKinsey; https://www.mckinsey.com/industries/financial-services/our-insights/blockchains-occam-problem
15. “Blockchain beyond the hype: What is the strategic business value?,” McKinsey; https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/blockchain-beyond-the-hype-what-is-the-strategic-business-value