The payments industry has seen significant growth over the last 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 However, a major issue plagues this sector – it still relies on outdated technology rails that are becoming increasingly inefficient with time. According to a report from Binance Research, blockchains, distributed ledger technology (DLT), and applications built on them have the potential to revolutionize the payments industry by significantly boosting efficiency and challenging existing players.
Traditional payment systems are estimated to generate trillions of dollars in revenue, but they have evolved into what Binance researchers describe as a “Frankensteinian conglomeration.” These systems involve multiple intermediaries, leading to high transaction costs and delays in processing. On average, traditional cross-border transactions involve six intermediaries and incur a cost of 6%. Moreover, these transactions can take up to five business days to settle, leaving both senders and recipients in the dark about the status of their funds.
Blockchain technology has the potential to address these challenges and revolutionize the payments industry. According to Binance Research, blockchains could greatly enhance the merchant and consumer experience by providing a global, uniform, and transparent digital environment for conducting transactions. With blockchain technology, users can execute transactions in seconds using just a smartphone and an internet connection, at a significantly lower cost compared to the traditional financial system.
Blockchains offer a direct line of communication between merchants and consumers, eliminating the need for multiple middlemen and correspondent banks. This streamlined process not only reduces costs but also enhances transparency and efficiency in payment transactions. While some traditional finance giants like Visa have started exploring the use of blockchain technology for global payments, significant growth is needed at the individual and retail levels to fully realize the potential of this technology.
Despite the immense potential of blockchain technology in revolutionizing the payments industry, its adoption is expected to be slow and cautious due to the industry’s sheer size and complexity. Binance Research believes that this gradual adoption process will allow the blockchain industry to mature, develop necessary tools, and address issues such as scalability and regulatory uncertainty. Overall, blockchain technology holds the key to unlocking a more efficient, transparent, and cost-effective payment system that benefits both merchants and consumers alike.
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