'Digital gold’ narrative ignores the real utility of crypto
Spring in the UK and Europe is a season of bank holidays. A friend of mine works for a global fintech in London. She told me a horror story that unfolded over Easter. On the weekend, she received a call from the IT operations team to say that customer withdrawals were failing in multiple countries. Her team quickly discovered the cause: insufficient funds. They were working with a local partner in those countries and found their balance with that partner was negative. Because it was a bank holiday, she couldn’t reach the partner. And because international settlements take days, her team had only one option: disable withdrawals and upset customers.
Experiences like these are not uncommon in business, and they highlight the need for a more efficient, accessible and reliable global payment system – one that works 24/7, 365 days a year.
Over the last decade, many fintechs have come into existence to solve the problems caused by our legacy payment infrastructure. Businesses like Wise and Airwallex have found ways to make the experience of international payments faster for consumers, while the likes of Apple Pay and Google Pay have created slick ways to pay with your smartphone.
But behind the nice customer UX, the core banking and payment system is full of legacy. Wise is still dependent on sluggish Swift rails to move funds around the world. ApplePay still relies on moving ISO8583 messages between issuing banks, acquiring banks and card networks.
With so much legacy at the heart of global payments, it’s getting harder for fintechs to innovate and meet the needs of their customers. International settlement still takes 3-5 days, and fees for moving money across borders can still be several percent.
Payments should be as accessible and resilient as the internet. And so we need new rails, built for the internet age.
Distributed ledger technology (DLT) can be our new payment rails
Distributed ledger technology (DLT) like blockchains have the potential to be those rails, replacing the base layer of the global payments stack, enabling businesses to move money cheaply, quickly and to and from places that have historically been hard to reach.
As payment infrastructure, blockchains have several advantages. They operate 24/7, easing business cashflow and removing the need to prefund. Transactions on the blockchain follow uniform rules and experiences, regardless of where the payment originates and ends up. Settlement is full and final, so refunds are at the discretion of the merchant and not a blanket rule that encourages fraudulent chargebacks.
The cost of transacting on a blockchain is negligible, and anyone with an internet connection can take part – which immediately brings into scope the millions of people worldwide who are currently unserved by traditional finance and banking. Plus, any specific crypto acts as a single global currency, enabling price standardisation across countries and removing the need for complex and often opaque exchanges of value.
Fiat-backed stablecoins will emerge as the de facto currency for cross-border payments
As a payment instrument, fiat-backed stablecoins will likely emerge in the years ahead as the de facto currency for cross border payments. They have plenty of liquidity, a fundamental for any global payment method. Stock levels follow that of their pegged currency and they don’t not suffer from the ‘digital gold’ narrative that makes people ‘HODL’ their Bitcoin and other cryptos. Stablecoin settlement reached approximately $8 trillion in 2022 and with a current market cap of $132 Billion and 10.59% share of the total crypto market, they have already proven their utility.
In time, I believe that all payments will interact with DLT in some form. Whether it be central banks exchanging value with Central Bank Digital Currencies (CBDCs), stablecoins replacing RTGS and SWIFT infrastructure to connect local payment schemes around the world, or consumers holding stablecoin forms of their local currency with their bank.
It’s early days and as with any nascent technology there are challenges to work through – a need for greater regulatory clarity for example, and more interoperability between different DLT systems.
But by merging together the best from the two generations of financial technology right now – legacy banking rails and DLT, I believe we can meet the most ambitious needs of merchants and financial organisations.
And while crypto financial upswings and downswings make the media, behind the scenes blockchains are scaling, transactions are growing and great payments products are being built. Make no mistake: DLT is coming for B2B payments.
About the author
Jesse Hemson-Struthers is CEO and Co-Founder of BVNK. His previous ventures in ecommerce and gaming were successfully acquired by global media giant Naspers and Sportradar respectively – but he's been focused on fintech since 2014. Launched in October 2021, BVNK is a global B2B payments platform bridging traditional and decentralised finance to enable fast, secure, and borderless payments for businesses worldwide.