November 8, 2018
Esther Pigg | Senior Vice President, Product Strategy FIS Payments Division
Last May, I wrote an article entitled, “Blockchain: Mystery or Reality for the Financial Industry?” in which I described blockchain in this way:
“Imagine a spreadsheet (ledger) that is duplicated (distributed) thousands of times across a network of computers (nodes). This spreadsheet is constantly reconciled (by miners) and updated instantly with new transactions (blocks). The spreadsheets are permanent, public and verifiable (proof of work).”
Its potential is significant but the spectrum of expert opinions about its application for payments is wide:
“This technology is amazing. It is a technology of the future. It provides tremendous opportunities [but] the technology is not ready right now. When will it be ready? [In] three to five years, in my opinion.”
Herman Gref, CEO of Russia’s Sberbank
“With multiple ledgers operating at full throttle, the associated communication volumes could bring the Internet to a halt.”
Bank for International Settlements report
While experts continue their debate, blockchain proof of concepts are now being piloted but still in the proof of value stage. Questions to be answered include:
The primary blockchain payment application that’s being explored is to bring efficiency to cross-border settlements for bank-to-bank payment transfers. While no one doubts the need to make cross-border payments more efficient, can blockchain solve the problem better than alternatives?
The debate about blockchain’s ability to handle the volume of cross-border payments continues. Most tests have been conducted in closed or private blockchain networks. Fragmented networks – closed or private – with different operating standards could hinder widespread usage of blockchain.
Test results so far are mixed. On one hand, a pilot by Western Union failed to provide time or dollar savings. In contrast, Ripple claims to have reduced the time it takes to effect a cross-border payment from a couple of days to a couple of minutes, at significant savings on Forex (FX) exchange rates.
The other benefit of blockchain that’s been widely touted is its potential to reduce costs by cutting out the middleman. But, as a sample of one, here’s a quick report of my personal experience:
A coworker and I downloaded a bitcoin wallet recently. My coworker deposited $40 at the closest bitcoin ATM, which happened to be at a gas station. Within 20 minutes there was, indeed, bitcoin in the crypto wallet, but only $25 – not even close to the $40 that was deposited.
Without oversight, there is no guarantee that wallet issuers and exchanges are legitimate and that wallets are secure.
Blockchain’s proponents are working on solutions to compensate for some major obstacles to widespread acceptance in the payments ecosystem:
Our current payment platforms are reliable and the digital transformation underway across the ecosystem will continue to reduce friction and costs. Still, industry leaders must continue to explore the possibilities and potential of blockchain. Ultimately, they will choose the best of distributed, permissioned and secure technology – blockchain or another utility – to clear and settle transactions globally, at scale.
Senior Vice President | Product Strategy FIS Payments Division
Esther leads the Product Strategy team for the Payments division of FIS that spans debit, prepaid, credit card, merchant, network and loyalty programs. With extensive experience across the banking and payments technology industry, Esther focuses her team on developing long term product strategy for U.S. and global retail payment products to effectively engage the markets FIS serves.