Last year was turbulent, historic and challenging. Yet, despite the tumultuous nature of this time, both blockchain and cryptocurrency sectors grew and developed in the face of crisis. Fundamentally, blockchain and cryptocurrency are a medium of exchange and they have moved beyond their earlier days of technical curiosity and conceptual understanding and have entered businesses conversation. But how so?
Whilst we are still presented with great economic uncertainty, according to Forbes, a byproduct of innovation we can expect to see launch this year are central bank digital currencies (CBDCs), pushing blockchain and cryptocurrencies into a dynamic and mature marketplace. Although the timing and first nation to launch a CBDC are not clear, the race there is felt globally.
Crises invite questions and ask us to step back and reflect upon our processes. Do our processes work? Or do they need to change to suit a new way of living? More often than not, the answer is that we need to adapt and thus crises invite innovation.
In the wake of 2020, major banks and financial institutions were recognising the need to change current payment technology and the potential of blockchain technology and that it could greatly improve the efficiency of their processes, especially in terms of cross-border payments. So, what makes blockchain and distributed ledger technologies more attractive than current payment technology? Blockchain and distributed ledger technologies can:
Facilitate near-frictionless settlement at any time
Ensure high security
Offer global interoperability
Deliver quicker and lower cost transactions.
Due to this, we find ourselves asking what blockchain might do better and how it could provide a more viable solution from SWIFT banking. It’s an interesting notion because at the start of last year, Thailand-based fintech startup, Lightnet raised $31.2 million in Series A funding and is set to build Asia’s next-gen blockchain financial mobility network. Its aim? To replace the “inefficient” SWIFT (Society for Worldwide Interbank Financial Telecommunication) system and offer blockchain-based remittance services. Founded in 2018 and operating out of Bangkok, the company is powered by Stellar, a blockchain currency that is fast, scalable and sustainable. They aim to be a frictionless settlement hub for East Asia and provide clients with real-time settlement.
Alongside Lightnet, Ripple is another company that is positioning itself as a rival to SWIFT, and is a partner of money transfer firm MoneyGram. The company has invested $50 million in MoneyGram with the goal to jointly offer blockchain-based remittance services. However as opposed to competing with large banking companies, Ripple intends to partner with leading financial institutions and provide them with a blockchain solution. This kind of collaboration has the potential to sow the seeds of blockchain tipping into the mainstream and enjoying widespread adoption.
So, could this be the future? Arguments have been presented by OMFIFI that, in the long term, blockchain could provide an alternative to SWIFT. In a report published by OMFIFI in November 2020, the company surveyed banks regarding the pain points in cross-border payments and the high costs incurred. Respondents shared that blockchain and distributed ledger technologies could provide tools to combat these issues. At the same time, in 2019, a report by the Institutional Deposits Corporation established that blockchain spending carried out for cross-border payments was the use case receiving the most annual investment at $453m, which is equivalent to 16% of market share.
Whilst these trends are in early stages, blockchain has the potential to offer a bright future for cross-border payments and banks may start to prioritise blockchain strategies in the next few years.