The payments industry has experienced significant growth over the past five decades, becoming one of the largest and fastest-growing sectors globally. However, a major issue plagues this sector – it still relies on outdated technology rails that are now 50 years old. This antiquated technology becomes increasingly inefficient as time passes, hindering the industry’s ability to keep up with the demands of modern commerce.
A report from Binance Research sheds light on how blockchains, distributed ledger technology (DLT), and the applications built on them have the potential to revolutionize the payments industry. These innovative technologies could significantly enhance efficiency and compete with traditional players in the space. The traditional payment system, estimated to generate $2.83 trillion in revenues in 2024, is expected to reach $4.7 trillion by 2029, growing at a compound annual rate of 10.8%. Despite the substantial revenues generated, the industry has become a tangled web of middlemen, often charging high fees for each transaction.
Challenges in the Traditional Payment System
Traditional payments involve an average of six intermediaries, resulting in a costly process with a 6% fee for cross-border transactions. In addition to high costs, these transactions are time-consuming, often taking up to five business days to settle. This delay leaves both senders and recipients in the dark, unable to track the movement of their funds. The cumbersome nature of the current payment system highlights the urgent need for a technological overhaul.
The Promise of Blockchain in Payments
Binance researchers believe that blockchain technology offers a fresh start for the payment industry, providing a global, uniform, and transparent digital environment. With blockchains, users can execute transactions within seconds using just a smartphone and an internet connection, at a fraction of the cost of traditional finance systems. By bypassing multiple intermediaries and correspondent banks, blockchains establish a direct line of communication between merchants and consumers, streamlining the transaction process and enhancing user experience.
While some traditional finance payment giants like Visa have initiated pilots for institutional-grade global payments, widespread adoption of blockchain technology at the individual and retail levels is necessary for significant industry transformation. The sheer size of the payments industry may result in a slow and cautious approach to adopting blockchain technology. However, Binance Research suggests that this gradual adoption process allows the blockchain industry to mature, develop essential tools, and address critical issues such as scalability and regulatory concerns.
The payments industry stands to benefit greatly from embracing blockchain technology. By leveraging the potential of blockchains, the industry can enhance efficiency, reduce costs, and improve the overall payment experience for both merchants and consumers. While challenges may arise in the adoption process, the long-term advantages of integrating blockchain technology into the payments ecosystem are clear and compelling.
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