The Impact Of Blockchain On Real-time Payment Settlements

INTRODUCTION

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Without a doubt, the development of real-time payment settlement systems is the opportune moment to introduce blockchain technology. In the past, most advanced payment networks around the globe relied on a number of institutions such as banks or clearinghouses which would inevitably cause delays, raise the costs and make the processes less effective. These conditions were impediments to some specific countries in particular; cross-border payment processing in full faith and credit ‘real-time’ was impossible with the existing systems. Blockchain, which is an open and clear ledger, does not have such third parties, hence facilitating easy and cheaper finality of the transactions.

The motivating factors for implementing blockchain networks with particular reference to real time payment systems include optimization, safety, and world wide accessibility. Almost always, such transactions do not require any manual operation for their validation and recording. This is particularly advantageous for international transactions which used to take many days to be effected. The use of blockchain guarantees that transaction cannot be changed or deleted in the system, therefore ensuring a clear system free from fraud for all parties who the system serves.

Another issue that blockchain technology deals with is financial inclusion because it creates the opportunity for both people and businesses in remote areas to use services which are digital payment systems. There is an advantage because traditional banking systems are not needed and therefore, people do not face the challenges of sending payments and receiving them. Such potential of the technology has made blockchain a key weapon in reengineering principles for payment globalization.

• ENHANCED SPEED AND EFFICIENCY

The most noticeable change that blockchain brings in real-time payments, other than its accuracy, is its astonishing speed and efficiency. Most of the time traditional payment system have many parties involved, in which, banks and clearinghouses are the most common types, which all results to delay in the payment processing. Blockchain removes all the bureaucracies and therefore allowing members to transact without the need of a middleman or a third party. This means that making payments can easily take few seconds or minutes irrespective of the location of the parties involved.

For instance, bitcoin and ethereum networks and many others use decentralization to allow all users to participate in every transaction. A transaction is enacted and then processed within the network by nodes, thereby eliminating the need for the transaction’s approval by banks or other financial entities. Such processes are automatic making the payment processes become quicker such that it suits those businesses which require the payments to be processed instantly.

Defining efficiency in this context, it is not only associated with quick turnaround time. Blockchain reduces administrative overhead by automating reconciliation and record-keeping. Smart contracts, self-executing agreements embedded in the blockchain, further streamline processes. They ensure that the relevant payment will be made in accordance with the contract thus preventing adjusting it due to human inaccuracy. Such a high level of efficiency is most needed in sectors such as e-commerce where the two elements of time and accuracy are inseparable.

• MINIMIZATION OF THE EXPENSES CONCERNING CROSS-BORDER FINANCIAL TRANSACTIONS

For individuals and organizations alike, the costs that accompany cross-border payments have always presented a major quandary. Conventional systems establishment correspondent banks where fee charging banks intermediates each other to complete the payment transactions. The blockchain technology does away with this model with the primary purpose of allowing payments directly without third parties, transactions costs are greatly reduced.

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The break-even analysis and prospect of profit financial and economic inclusion provided by such payments as Ripple (XRP) and Stellar (XLM) payers of transaction cost thresholds payment systems reveal the essence of the purpose of blockchain. The networks allow for cheap transactions by employing digital assets to bridge different currencies and therefore there is no need for any conversion and the accompanying fees. This in turn has made remittances and international business much cheaper.

Healthier Charges ensures availability of blockchain-based payment systems to petty and medium enterprises (SMEs) across the globe making competition possible. Since international transactions are expensive, the use of blockchain technology encourages economic activities and trade. The inclusion of payment systems in all sectors is the foundation of the growth of blockchain technology.

• IMPROVING SECURITY AND PREVENTION OF FRAUDULENTLY ACTIONS

With a very stable security structure based architecture, real-time payment settlement systems perfectly embrace the qualities of the blockchain technology. Unlike the traditional means of payments systems, which are much prone to manipulation, intervention by hackers and other security breaches due to the fact that they store information in a central database block, which acts as one point of failure, the described ways of payments are secure due to the characteristics of distributed ledger technology and the use of cryptography.

In the course of every transaction occurring on the blockchain, the operation is inscribed in a ledger maintained in recent memory, M record. As a result, in a normal course of transaction, once payment is made, no other payments can be made and no payments made can be reversed. Such irreversibility limits chances of fraud and constructive claims and hence provides comfort to parties concerned. Furthermore, the transparency of the blockchain enables its users to confirm each transaction on their own, which increases confidence in the system.

As additional safety mechanisms against compromised transactions, blockchain networks will make use of such improvements in cryptography. Transacting parties are required to have public and private keys in order to perform any transactions. Such wide-ranging measures to secure cyberspace interaction should minimise the occurrence of such threats, especially to systems that facilitate the real-time transfer of money. In this respect, therefore, trust is inspired within the users about blockchain technology making them ready to use it for high-end and sensitive transactions.

• FINANCIAL INCLUSION & ACCESSIBILITY

Decentralization of blockchain eliminates the restraints of local banking systems, extending payment services to territories and people that are excluded by conventional systems. About 1.4 billion adults in the world are ‘unbanked;’ they do not have banks and other financial services that are important for them to actively participate in the economy. A solution for this problem is found in Blockchain – where payments can be made instantly without the necessity of possessing a bank account or even having a credit reputation.

Using a blockchain based payment platform in other context, people living in the rural areas can send or even receive money just by having a smart phone with internet access. Digital wallets based within Blockchain system enables the use of these wallets to keep safe and transfer money conveniently and greatly helps in linking the unbanked society to the world economy. This promotes social integration and encourages them to engage in activities that were previously considered beyond their reach financially.

Further, the use of blockchain in business activities is beneficial in that it increases accessibility especially among small scale and medium scale enterprises (SMEs) especially in the context of globalisation by breaking the trade barriers. As a result, the cost of doing business and period of settling transactions have been reduced and thus, many small enterprises are able to play in the global market thereby stimulating growth and creativity. Blockchain inclusiveness is also important when considering that it helps in transforming previously one sided payment systems to payment systems that are available and fair to all.

CONCLUSION

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The introduction of blockchain technology in the making of real-time payment settlements has been helpful. It comes with speed; low transaction costs; high security level, and broadly inclusion of clients. Payment systems without intermediaries and based on the internet are able to reduce transaction costs and make payments faster making them efficient and effective. Its strong security features helps in eliminating the risk of fraud whereas the ability to enhance economic activities leads to its adoption in many areas. With adoption and acceptance of blockchain solutions progressing rapidly, it shall not be far fetched that such technology shall have a wider scope of application to develop global payment systems, bringing in more dynamics and efficiencies in payments across the globe’s financial system.