As clear as 1, 2, 3. Image: Circe Denyer
Real-time payments are a top-of-mind goal for both blockchain technology firms and legacy payment processors, and here are the three main reasons why:
- Consumer expectations: I can make a payment between two PayPal accounts or two Bitcoin accounts in real-time today. Between two accounts at a single bank the transaction will be instant and even free. But what if I want to make a payment across two siloed networks, or transfer money to an overseas account? That could take up to 5 business days, and will often incur steep additional fees. Customers have come to expect the ease of use of simpler payments products, which settle quickly and cost very little.
- Powering the underlying payment technology: Blockchain or distributed ledger tech can enable faster transactions across different payment networks in a way that doesn’t generate a significant amount of risk and additional costs. And that requires an updated infrastructure. The payment system of the future must be able to seamlessly handle multiple currencies across different networks in a cost-efficient manner.
- No more silos: The most important piece of the puzzle has to do with settlement. It means confirming settlement without relying on a central counterparty, and in real-time. We need business logic to help coordinate a large and complex system of diverse actors to better manage liquidity, risk, and speed (all of these are mutually dependent functions). Pair this certainty with interoperability across those currently siloed networks, and the result is a fundamental change in real-time payments, and in the way the world moves money.
Blockchain or distributed ledger tech can play a critical role in remaking these fundamental financial processes.
The angle we need to view this problem from is bottom-up: examining the experience of the end user to see where the payments business is heading. Too often, concern over real-time payments is top-down.
A version of this article originally appeared as a Quora answer.