Blockchain Can Facilitate Modern Payments: Binance Research

Over the past five decades, the payments industry has become one of the largest and fastest-growing sectors in the world. However, it faces a problem: the industry still relies on 50-year-old technology tracks that are becoming increasingly inefficient over time.

A report from Binance Research, the research division of Binance, the world’s largest cryptocurrency exchange, highlights that blockchains, distributed ledger technology (DLT), and applications built on them have the potential to significantly improve the efficiency of the payments industry and challenge players in the space.

The ills of the traditional payment system

The traditional payment system is expected to generate $2.83 trillion in revenue in 2024 and is expected to reach $4.7 trillion by 2029, at a compound annual growth rate of 10.8%.

Despite the amount of revenue generated by the industry, Binance researchers said it has evolved into a kind of “Frankensteinian conglomerate,” filled with many middlemen who charge a lot of money for each transaction that goes through them. Traditional payments involve about six middlemen; the average cost of executing cross-border transactions through these channels is 6%.

In addition to the high cost and the presence of many intermediaries, these transactions take time to complete. Cross-border payments typically take up to five business days to settle, leaving senders and recipients in the dark and unable to track the movement of funds.

“Today’s payments technology stack is in desperate need of a fresh start, and blockchain technology could enable that,” the researchers said.

How can Blockchain help?

Binance said blockchains could do “wonders” for the merchant and consumer experience. They provide a global, uniform and transparent digital environment where users can execute transactions in seconds with just a smartphone and an internet connection, at a cost of $50,800 less than the traditional financial system.

Blockchains provide a direct line of communication between merchants and consumers, eliminate the need for multiple intermediaries and correspondent banks, and detach the fintechs of the future from the traditional payment system.

It is worth noting that some traditional financial payment giants like Visa have started piloting projects to enable institutional-grade global payments, but significant growth is needed at the individual and retail levels.

Given the vastness of the payments industry, adoption of technologies like blockchain will likely be slow and cautious, according to Binance Research. However, the researchers believe this gives the blockchain industry time to “come out of its adolescence,” build the necessary tools, and address issues like scalability and regulatory uncertainty.