Blockchain technology promises to reduce friction and improve efficiencies in several different industries.Simply put, Blockchain is an immutable digital ledger that can record not only financial transactions but anything of value. There is a subtle difference between Blockchain and Distributed Ledger technology (DLT) which I hope to cover in a future article. But for the purposes of this article, the term blockchain refers to the infrastructure enabling bitcoins and the other flavors of blockchain technology such as Ethereum, Multichain etc. that have become the driving force behind their applications in different industries.
1. Cross-border Payments and remittance made cost-effective, fast & efficient
Cross-border payments and remittances in the present state are slow and riddled with fees due to multiple intermediaries. The payments/remittances can take up to a week to reach the receiver. The fees associated with international payments and remittances are also high (5-10%). In addition, there is no easy way to track the payments as they make its way to the receiver. Blockchain technology has the potential to address these
shortcomings by providing a real-time settlement mechanism, hence reducing the exchange rate risk associated with delayed payments. Blockchain also allows the sender and the receiver to track the payments and provides for a level of transparency that is lacking today.
2. Removing intermediaries and friction in Wholesale payments
Wholesale payments involve large scale money transfers in the range of $175 billon to $200 billion dollars a day. Bank of Canada in an ambitious project called Jasper last year implemented wholesale payment settlements on the blockchain infrastructure. The project successfully demonstrated the potential for blockchain in the area of
wholesale payments. One of the big gains for wholesale payments would be a blockchain infrastructure enabled interaction with the broader financial market infrastructure. Hopefully, Continuous improvements in blockchain technologies would soon pave the way for the Wholesale payments to be implemented on blockchains.
3. Making Healthcare payments simpler and easier
Billing for services not performed or excessive billing contributes to an estimated 5-10% of the fraudulent health care costs in the US. Patients and health plan can codify the claims payment agreement into a Smart contract
so that the customer verification and authorization is automatically performed. The contracts are executed based on benefit triggers specified in the contract and this removes the back and forth conversations between the health plan and the patient on the covered benefits, services paid/not-paid by the plan.
Blockchain can help remove the intermediaries in the healthcare claims management by automating the claims adjudication process and the payment processing activities and thereby reducing the administration costs and fraud associated with healthcare claims.
4. Fraud prevention in payment systems
One of the biggest impacts of blockchain as it relates to fraud in addition to the several applications it has in the area of payments and financial services as it relates to fraud is in creating an online identity that cannot be stolen due to the transparency in blockchain and asymmetric encryption. Our traditional identifiers such as the passport, drivers’ licenses etc. are poor identifiers for online transactions and are easily hijacked by criminals in fraudulent activities. With the recent Equifax breach, there is potential for using blockchain for identity management instead of using traditional identifiers in different industries.
5. Alternative payments
Blockchain payments offer an interesting alternative to SMEs. Blockchain payments are transparent, secure and instant, which brings new opportunities for payment service providers. As a result, once the blockchain payment is made, it is final. There are no refunds or chargebacks involved. While this may come as a surprise to the
cardholders, this is good news for the merchants. In a typical card fraud situation, Merchants are typically the hardest hit in terms of costs. With bitcoin, the risk of fraud is non-existent for the merchant after the
transaction is confirmed. It follows that this is great news for the merchants in industries with high fraud rates. This essentially is shifting of risk from the merchant to the customer. In the case of non-delivery of goods, the
customer takes the hit if the merchant is found to be fraudulent. If the merchants are able to incentivize the usage of bitcoins by providing discounts due to the reduced fraud risk, this should be a win-win scenario for both the customers and the merchants.