Are Blockchain Payments the Future of International Collections?

‘Blockchain’ is one of the fintech buzzwords for 2018. This burgeoning payment technology is best known for supporting bitcoin and the currency exchange platform Ripple. However, its year-on-year growth is such that IBM is currently contributing to an open source effort and encouraging start-ups to try the technology on its cloud for free.
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But while blockchain is a term many people will have heard mentioned in the media, very few have a clear idea of exactly what it means. In this article, Fintech Fortnight will provide a clear definition of blockchain technology and explain why, if your business collects foreign currency payments, this could be the future in terms of faster transactions and lower transaction fees.   

What is blockchain technology? 
​Blockchain is a continuously growing digital ledger of transactions that are recorded publicly and are secured using cryptography. Because information is available publicly, everyone knows how much value has been transferred from one person to another. That’s why blockchain is being seen as an alternative to traditional banking, because rather than needing a bank to verify a transaction, the blockchain means it’s there for all to see. 

​What companies are already using blockchain?
Blockchain technology is already being used by a number of early adopters who have been quick to spot the advantages it can bring beyond international payments. As it creates and maintains a permanent transcript of transactions, blockchain technology can be particularly beneficial when it comes to tracking a company’s supply chain.  

Businesses that have already adopted blockchain include:

• Walmart – The American grocery giant uses blockchain to track certain products right back to their roots. Simply by scanning produce with the store’s app, employees can see everything from where the items came from to where they are stored in the stockroom. This can help to streamline the restocking process.
  
  
• Maersk - The world’s largest shipping company has tested blockchain technology to see how it can help manage its cargo. Third-parties such as customs and Homeland Security have been using blockchain to access data about the cargo and streamline security.
  
  
• British Airways – The airline has been testing blockchain to see how it can improve the management of data held on flights. The creation of one unchangeable data source has reduced the conflicting information that’s currently coming from gate monitors, flight apps and the airline’s website. 

​The benefits of blockchain for international payments
There are a number of different benefits associated with blockchain technology that can be realised by businesses that accept international payments. That includes:
1. More accurate payments
​Using blockchain to record transactions virtually eliminates human error and protects data from tampering. Records are verified every time they are passed from one ‘block’ to the next, creating a traceable audit trail and improving payment security.
2. Fast, secure and cheap global payments
Although there are already a number of services like PayPal that process international payments, they usually charge sizeable fees. By using currencies supported by blockchain, businesses can benefit from more security and freedom when moving their funds, without having to worry about location restrictions and minimum transfer amounts.
3. No need to manage multiple currency accounts
For international businesses, purchasing and selling entirely in cryptocurrencies supported by blockchain technology eliminates the need to manage multiple currency accounts. All that’s needed is a single cryptocurrency wallet to make payments anywhere in the world.
​4. Simplified FX management
Using blockchain technology can be attractive for businesses working in countries experiencing currency volatility as it can help to protect against sudden adverse movements in local currency. 

​The risks of blockchain for international payments
While some fintech gurus are quick to sing the praises of blockchain technology, there are also some risks associated with its use for international payments.
1. Privacy issues
There are actually some competitive advantages to not using distributed ledger technology. The fact that the transaction data is transparent means institutions will have to work hard to keep all that information private. There are also some questions about whether blockchain can handle the sheer number of transactions that take place and whether that information will be available for searching, identifying and indexing.
2. Money laundering and cyber attacks
​Due to the anonymous nature of participants in blockchain transactions, there are concerns it could be associated with money laundering and the sale of illegal goods. It could also be vulnerable to denial of access and other cyberattacks.
3. Payments could be too quick
Speeding up the payment process can place additional risk on the sender because the money leaves their account immediately. That means payments cannot be delayed. That creates additional risk in the case of fraud or theft as there’s no chargeback or reversibility. 
4. Not all countries or companies accept cryptocurrencies
​It is currently still very difficult for companies to work entirely in cryptocurrencies as in some countries their use is illegal. There’s also no guarantee that companies will be able or willing to use cryptocurrencies. That means many companies will still need to offer an alternative settlement in a conventional ‘hard’ currency such as the dollar or pound.  

What this means for international business
Using blockchain technology for international payments potentially increases the payment speed and helps to protect businesses from currency volatility. However, limited acceptance of cryptocurrencies means it’s still difficult to rely on blockchain technology entirely, although it certainly has an important part to play in the changing global payments landscape.

This article was written for Fintech Fortnight by Sam Pollard from London and Zurich.