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Blockchain And Cryptocurrency Effects On The Payment Processing Industry

“A purely peer-to- peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.” These are the words of Satoshi Nakamoto, the still unknown creator of Bitcoin, in the abstract section of the original whitepaper describing the peer-to- peer electronic cash system.

Ten years on and the idea described has developed into a network with a market cap of over $150 billion dollars. However, the payment processing industry hasn’t disappeared. One reason may be, as suggested by Peter Thiel, the co-creator of PayPal, that “the payment system [of Bitcoin] is somewhat lacking” and “very hard to use”.

So, for all the hype about blockchain’s impact on payments, the question remains as to whether it has or will truly transform the system that exists now.

Blockchain Implications For Payment Processing

I, for one, believe it absolutely will. The reality is that the success of Bitcoin has already proved how it can be used to transfer value between individuals without the need for centralized institutions. In my opinion, it is only a matter of time before more individuals and businesses see the benefits of this frictionless technology and the capability to pay for real world assets with cryptocurrencies becomes easy.

Speed and ease of transaction between almost any parties are two of the main reasons cited for blockchain having such a dramatic effect on the payment processing industry. It is for these reasons that established payment providers have not shied away from involving themselves in the world of blockchain and cryptocurrencies.

At the end of 2015, Visa claimed that blockchain “is no longer a choice” and then in 2016 announced its Visa B2B Connect service, a business to business payments service developed in conjunction with blockchain startup Chain. Mastercard hasn’t missed out on the action either. Late last year, it announced that it had developed the capability to send money over a blockchain, supporting local currencies rather than working through a cryptocurrency.

These market leaders are trying to use their huge networks and resources to keep up with the blockchain revolution and ensure they are not disrupted in the process. Merchant accounts companies that haven’t fully embraced the possibilities of blockchain and cryptocurrencies should be starting to worry, as smaller, startup rivals have emerged. Coinbase, Blockchain and Coinify are all relatively well established crypto-companies that offer some sort of merchant app for use with cryptocurrencies.

What The Future Might Hold

As mentioned earlier in reference to Peter Thiel’s assessment of Bitcoin’s progress, a key development step that blockchain technology and the decentralised payment applications that sit on top of it need to go through is improving user experience. The reality is that major payment processing companies make the payment journey extremely easy in a way that crypto-services haven’t managed to do so yet. These incumbents also make these payments very fast and not restrictively expensive, something that cryptocurrencies have started to struggle with.

This is because of the scalability, the elephant in the room during any discussion about the future of blockchain and cryptocurrencies. While the Bitcoin network enables less than 10 transactions per second to take place and the Ethereum network is at a rate of roughly 20 per second, they are light years behind the 1500 transactions per second that the Visa network can handle. Suffice to say, this major issue is in the crosshairs of the biggest brains in the blockchain industry and there seems to be relative confidence that the issues will be resolved, even though they haven’t been yet.

Looking ahead, something that may be even more significant for the future of blockchain-enabled payment processing is the security and individual control over personal data that the technology can provide.

Since their inception, the payment processors that sit between consumers, their banks and the companies they buy from have had to store and transfer personal data in order to do their job. These centralized databases are not only a beacon for hackers to attack but also an unnecessary storing of personal data by a third party. When you consider that the average consumer has over 100 online accounts, that’s a lot of businesses holding a lot of information that individuals believe they do not need. Blockchain technology can enable individuals to store their personal data on the blockchain and use it to make simple e-commerce payments and other transactions, without sacrificing it to third parties.

Against the backdrop of data hacks, such as Equifax’s major breach last year, it is these sorts of solutions that the public will turn to as they turn away from centralized third parties storing their information in an unsecure way while providing little obvious benefit. It is this trend towards personal data ownership that could really spur on the blockchain-enabled revolution in the payment processing industry.

About The Author

Alastair Johnson is the founder & CEO of Nuggets,

Nuggets is an e-commerce payments and ID platform. It stores your personal and payment data securely in the blockchain, so you never have to share it with anyone – not even Nuggets.


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