The Impact of Blockchain Technology on the Evolution of Payment Systems
18 / 10 / 2023
Blockchain technology continues to help businesses, especially micro, small and medium enterprises automate their business processes and streamline payments for increased security.
The Evolution of the Indian Payments Ecosystem
Digital transactions continue to skyrocket, catalyzing substantial changes in the Indian payment ecosystem. According to the Reserve Bank of India (RBI), digital payments in the country grew by a staggering 46.5% in 2020-21, amounting to 34.29 billion transactions. However, this growth brings significant security and transparent challenges. But, Blockchain has the potential to address these challenges.
How Blockchain Is Changing Payments
Blockchain, which is often mistaken for a synonym of Bitcoin, is a distributed ledger system that records transactions securely. Unlike traditional payment systems that rely on centralized databases and are vulnerable to cyberattacks, blockchain's distributed ledger technology, also known as DLT, resists cyberattacks.
The Benefits of Blockchain For Payments
Here are a few key benefits of leveraging blockchain in payments:
Blockchain Beyond Security
| Year | Inward Remittance(US $ million) |
|---|---|
2017-18 | 69,129 |
2018-19 | 76,396 |
2019-20 | 83,195 |
2020-21 | 80,185 |
2021-22 | 89,127 |
Foreign Remittances in India | Source:https://pib.gov.in/PressReleasePage.aspx?PRID=1897036
Besides facilitating secure transactions, blockchain technology allows you to facilitate faster cross-border transactions. With India emerging as one of the biggest beneficiaries of international remittances, technology has a critical role to play in facilitating seamless transactions at a faster pace. According to the Government of India, the country received a whopping $89,127 million in foreign remittances in 2021-22. This number will further increase in the coming years.
How Blockchain Can Make Payments More Accessible
One of the biggest hurdles in India's payment systems is fraud. In 2023 alone, the country's central bank reported bank frauds amounting to $302.5 billion. The list of unaccounted frauds involving other agencies is endless. Blockchain's DLT offers complete transparency, minimizing the chances of fraud.
Every transaction recorded on a blockchain is immutable and can be verified by anyone on the network. With the right implementation, the stakeholders can leverage a private or restricted blockchain network to keep a check on fraudulent transactions. Blockchain empowers the stakeholders to facilitate tamper-proof transactions.
The Impact of Blockchain On Cross-Border Payments
Smart contracts are at the core of blockchain-based payment systems. These are self-executing contracts that automatically enforce the terms and conditions of an agreement, based on predefined conditions.
Smart contract-enabled automation reduces the need for intermediaries in payment systems substantially. Several businesses and government agencies are already leveraging the technology to automate payments in supply chain financing.
The involvement of intermediaries remains one of the key pain points in the global financial system. It leads to costly delays and also leaves room for human error. Smart contracts tackle these challenges through automation, reducing delays and deadlocks. This leads to the creation of a highly efficient payment system.
Another beneficiary of blockchain's application in payment systems is India's microfinance sector, which serves millions of low-income individuals. Microfinance institutions leverage the technology to efficiently manage their operations, reduce administrative costs, and ensure that loans are disbursed and repaid transparently. This not only improves the sustainability of microfinance institutions but also empowers the underprivileged by providing access to financial services.
How Blockchain Can Make Payments More Accessible
Blockchain-powered digital identities can enhance financial inclusion by unlocking easy access to financial solutions for the masses in remote areas and villages. The technology can empower individuals to establish their financial credibility. It will provide the needy with easy access to loans, EMI payments and other financial services.
However, for that to happen, a seamless integration of the technology with the country's banking system is necessary. There are some key challenges that the government and financial bodies need to take into account while embracing the technology.
Conclusion
To conclude, blockchain technology has an integral role in the evolution of payment systems in India. Blockchain is changing payments in India, from accelerating financial inclusion to helping authorities tackle fraud, there are several benefits of leveraging blockchain in payments. To stay ahead in the evolving world of FinTech and payments, explore some cutting-edge solutions and innovations with Worldline.
