Blockchain is a friction-less platform that is currently gaining popularity across various industries, including financial services, BFSI, retail, healthcare, manufacturing, and more. For staying competitive and meeting the ever-growing consumer needs, market leaders across sectors are exploring technology solutions. The payment processing industry is no exception. Recently, due to the potential of blockchain solutions development to substitute intermediaries and enable faster digital payment processing, technology has witnessed a growing number of advocates in the industry.
oodles blockchain
However, the question arises that how businesses can seamlessly implement blockchain fintech development to reap long-term benefits in payment processing. This article discusses crucial principles about blockchain implementation in payment processing. Discover how it enables the processing of payments in a faster, secure, and digitized way.
Traditional Payment System Challenges
The existing payment infrastructure is largely message-based and relies on multi-party file exchange. A standard cross-border lifecycle of non-euro payments requires processing through multiple phases. It takes from weeks to days to complete. For instance, because of this delay, it requires a business initiating a payment to monitor its bank account or bank account statement to get its clearance status.
Blockchain Features for Payment Processing Advancements
Peer-to-Peer Transactions Model
Blockchain is a protocol that runs on top of the Internet, on a peer-to-peer network of computers, all running a real-time data exchange protocol. From the perspective of global payment services, if payment parties are part of such a scheme, an exchange of payment information (such as clearing & settlement details) will occur in real-time, reducing lags in payment processing & settlement times. It addresses one of the issues with global payments. Additionally, it does not charge anything. Thus, the transactions do not get correlated with any network transmission rate.
Distributed Ledger Technology
Blockchain is a decentralized digital ledger that facilitates the creation of an immutable historical transaction record. The database gets simultaneously stored across several computers that are part of the network.
It ensures a shared view of the same data across the network to all permissioned identities. It removes the introduction of lengthy and time-consuming reconciliation procedures by banks to ensure transaction integrity across payment processing networks. Also, it helps to enhance customer service by rapidly supplying them with valuable information: specific timings, numbers, charges, and fees received by each party in a transfer of funds.
Cryptographic Mechanisms
For protection from tampering, blockchain technology cryptographically signs the transactions signed, making them secure. Also, in the ledger, an auditable trail of all the transactions is always available. These features reduce the need for global payments from a trusted middleman or intermediary banks that financial institutions require. The use of an intermediary contributes to the expense and creates a pause in the processing of payments.
Data Security and Privacy
Unlike “permission-less” blockchain networks, where transaction information is made accessible from a data privacy point of view to anyone in the network, rendering it unsuitable for controlled financial institutions.’ Permitted’ blockchain platforms such as Hyperledger, Ethereum & Corda keep financial institutions’ data privacy rules, information protection & regulatory requirements in mind. The shared ledger is fortified with access control in the approved blockchain to ensure that transactions between parties are available only to them.
Smart Contract Solutions
A smart contract is a piece of software that includes a pre-defined set of rules. It enforces them during the transaction phase to ensure that all requirements meet and complete the transaction, as specified by the business process. Any business validation to be carried out outside the payment system from a payment perspective, such as the permissibility of a certain form of transactions or potential duplicate checks, can be done by a smart contract solution from a payment perspective.
Trust-Less Governance Model
The consensus protocol ensures a transaction’s credibility and continuity. By executing a smart contract code, stakeholders can validate a transaction. When one or more than one node decides that the transaction is true and unique, the network reaches a consensus. It essentially ensures no forgery or double-spending of funds by engaging in payment services.
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These players have adopted multiple business strategies to extend their global presence and expand their market shares.
Partnerships, agreements, and collaborations have been the key strategies adopted by these industry players to accomplish development and sustain in the competitive market.
In addition, new product launches and upgradations, business expansions, and venture funding are some of the other significant strategies embraced by these market players to grow in the blockchain market.IBM has undertaken partnerships as its major development strategy to create a leading market edge.
As a part of its inorganic growth strategy, in October 2017, IBM partnered with Stellar, the blockchain startup company, and KlickEx Group, the payment company, to launch cross-border payment systems using blockchain that lowers the cost of completing global payments for business and consumers.
This partnership would assist IBM to further enhance its client portfolio in banking, as well as non-banking financial services areas, and penetrate its presence in the growing FinTech blockchain market.Microsoft operates in several countries and primarily serves regions including the Americas; Europe, Middle East, and Africa (EMEA); and Asia Pacific (APAC).
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