Wednesday, 27 May 2020

Research Report: Blockhain Technology Already Disrupting the $100 Trillion Global Payments Industry

Blockchain technology and more innovative financial products have already begun to disrupt the traditional global payments industry.
Billions of dollars have been invested into blockchain-related projects to transform the existing payments infrastructure.

Rohit Kulkarni, a Forbes contributor and former financial analyst at Citigroup, recently wrote that blockchain technology has already started “the wholesale disruption of the payments industry.” Kulkarni, who analyzes the “intersection” between venture capital, the initial public offering (IPO) market, and emerging financial technology, argued that “the dominance” of traditional financial institutions now looks “incredibly shaky.”

According to Kulkarni’s research, $140 billion has been invested in developing more advance mobile networks and improving distributed ledger technology (DLT). He predicts:

Fears about customer data and privacy and regulatory changes may impact the industry in unprecedented ways.

"Fierce Competition"

Kulkami then mentions what he claims are “five key reasons” why nascent fintech such as blockchain technology will “disrupt” the $5 trillion per day foreign exchange market. His research firm’s (SharesPost) first reason as to why new financial technology will disrupt traditional payment and banking systems is that the $100 trillion global payments industry is now facing "fierce competition" from small and medium-sized companies (SMEs).

According to SharesPost Research, the main areas of competition in the $100+ trillion market include cross-border transactions, peer-to-peer services (P2P), retail, and e-commerce. Kulkami writes:

Blockchain and smart contracts will redefine the relationship between customers, suppliers, and vendors.

He then goes on to the second reason why fintech has already begun the “wholesale disruption” of the payments industry by noting that $40 billion on “1,800 deals” was invested in 2017 to improve payments technology.

Kulkami also pointed out that during the first half of 2018, there were 800 fintech investments and $2 billion was reportedly invested to improve the operations of only four tech companies: Robinhood, Credit Karma (an American consumer reporting agency), OneConnect (a Shanghai-based financial technology solutions provider), and Armor Payments (recently acquired by Payoneer).

Going on to mention how giant venture capital firms such as Y Combinator, the Digital Currency Group, and Sequoia Capital have invested the most in blockchain and related financial technology, Kulkami implies these investments will lead to the development of legitimate products.

"One-Click" Payment Systems

The third reason why new payments technology is disruptive is that consumer behavior is changing. The researchers note that easy-to-use “one-click” payment systems such as WeChat, Alipay, have drastically improved the user experience.

The fourth reason why emerging blockchain-based payment systems are beginning to replace the outdated legacy systems is that they “can bypass financial institutions altogether and allow for direct payments between between parties."

The fifth main reason for a “revolution” in payment systems is rules and regulations related to customer data and consumer protection are changing as traditional financial institutions can no longer “monopolize” their clients’ data. New regulations and requirements introduced in Europe (European Union PSD2) require that banks share their customers’ data (with permission); this allows the merchants or processing companies to directly access customer account information, thereby making payments faster and more efficient.

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