Over the last five decades, the payments industry has grown into one of the largest and fastest-growing sectors in the world. However, it faces one issue – the sector still runs on 50-year-old technology rails that become more inefficient as time passes.
A report from Binance Research, the research division of Binance, the world’s largest crypto exchange, highlights that blockchains, distributed ledger technology (DLT), and the applications built on them have the potential to significantly boost efficiency in the payments industry and challenge the players in the space.
Pains of the Traditional Payment System
The traditional payment system is estimated to generate $2.83 trillion in revenues in 2024 and is expected to reach $4.7 trillion by 2029 at a compound annual growth rate of 10.8%.
Despite the amount of revenues generated in the industry, Binance researchers said it has evolved into a kind of “Frankensteinian conglomeration,” which is rife with numerous middlemen who charge highly for every transaction that passes through them. Traditional payments involve about six intermediaries; the average cost of executing cross-border transactions through these channels is 6%.
Besides the high cost and presence of numerous middlemen, these transactions take time to conclude. Cross-border payments usually take up to five business days to settle, leaving senders and recipients in the dark and unable to track the movement of the funds.
“The payment technology stack of today is in dire need of a fresh start, and blockchain technology could enable this,” the researchers stated.
How Can Blockchain Help?
Binance said blockchains could do “wonders” for the merchant and consumer experience. They offer a global, uniform, and transparent digital environment where users can execute transactions in seconds with just a smartphone and an internet connection at a cost of 50,800 less than the traditional finance system.
Blockchains offer a direct line of communication between merchants and consumers, eliminate the need for multiple middlemen and correspondent banks, and untether the fintechs of the future from the traditional payment system.
Noteworthily, some traditional finance payment giants like Visa have started running pilots to enable institutional-grade global payments, but significant growth is needed at the individual and retail levels.
Since the payments industry is massive, adopting technologies like the blockchain would likely be slow and cautious, according to Binance Research. However, the researchers believe this gives the blockchain industry the time to “grow out of its adolescence,” build the necessary tools, and fix issues like scalability and regulatory uncertainty.