The ability to process business payments or allow blockchain payment processing for corporations is the best of rare technology startups usually found in the fintech space. Several business models are adopting these types of services such as investments, currency conversions, and exchange of currencies between fiat and cryptocurrencies. The technology available for blockchain payment processing currently allows companies to accept cryptocurrencies like bitcoin and Ethereum as payment for transactions. This gives companies options different from the traditional mode of transactions such as debit cards, credit cards, and wire transfers with prominent banks and organizations already taking up blockchain technology to make transactions cheaper, faster, and safer.
What is Blockchain Payment Processing?
Before we could look into what blockchain payment processing is, let's first talk about payment processing as a whole. A payment processing company authorizes payment in the interest of individuals to companies. An individual might initialize a transaction and the payment processor processes the debit or credit card transaction which the company gets paid with the subtraction of the processing fee which is shared between the processor and the card company. What users get is speed, safety, and the potential to pay from anywhere in the world using just one single payment which is debit or credit card for this example given.
So what is Blockchain Payment Process?
Simply put, blockchain payment processing is a promising technology for the payment processing of cryptocurrencies. Just as traditional payment processing authorizes transactions, blockchain payment processing gives underbanked individuals access to money (cryptocurrencies) which allows them to make cross-border payments and they can as well use smart contracts to make the payment processing safer and faster. Some payment processors are uncertain in accepting payments using blockchain-based cryptocurrencies because of the risk related to money laundering or fluctuations in the crypto market. It's still innovative to accept bitcoins on products offered online and at points of payment which most companies have set up measures to control those risks. Several businesses offer bitcoin payment processing, and they also convert the required transactions into a currency of your choice.
How do they work?
Blockchain payment processing is very easy to understand. In this paragraph, we would look into how a cross-border payment can go through an Ethereum Blockchain payment system with the scenario. Let's say you stay here in America, and you want to pay your friend living in London about $5,000. Both of your banks are linked to the Ethereum blockchain hence the transaction would go like this:- You will send $5,000 from your bank to your friend’s bank over in London.
- Your friend's over in London would get a payment request of $5,000
- His bank will confirm with him then approve the payment.
- Your bank then receives the approval and then removes $5,000 from your balance.
- The money dedicated goes into your bank's pool and it would be converted to Ether (ETH).
- The Ether moves into the Ethereum blockchain where conversion to Pounds takes place at the best rate.
- The funds will then be credited to your friend’s account in London in the form of pounds.
Payment use cases
Blockchain has several use cases in terms of transactions and payments. Below are the four use cases we would look into:Trade Finance
Trade finance has to do with international trade and the financial activities surrounding them. It is scrambled with the presence of countless paperwork relating to the payment of international transactions. Physical records such as bills, invoices, and credited amounts take up time processing and copies of this same paperwork may be required for other uses. Hence a simple manual error in processing can cause documentation to be incorrect. Using blockchain payment processing, paperwork in trade finance can be more manageable. No manual documentation would take place, a single document can be seen by all member groups on the blockchain network and chances of mistakes would be almost zero because the information is stored in a blockchain database.Cross-Border Payments
Traditional methods are expensive and slow when it comes to cross-border payment. This is as a result of several intermediaries in the payment ecosystem which charge a commission of up to 5-20% of the money sent. Meanwhile, blockchain is low-cost, fast, and doesn't need intermediaries to carry out cross-border payments. Some banks even partner with cryptocurrencies like ripple or Ethereum to integrate cross-border blockchain payment processing in their system for a safe and quick transaction.Peer-To-Peer Transfer
P2P transfer allows individuals to transfer funds from their accounts, directly to another individual’s account. The majority of traditional P2P transfer platforms are limited in certain ways such as having the ability to only process transactions within a specific location, saving your details which might be a security risk, or making it almost impossible to send cross-border payments. Most that offer cross-border payment might charge extremely high. With blockchain payment processing, P2P transfer would be decentralized providing security. It occurs immediately or a fraction of time and you can send it to any location in the world because the blockchain has no region limitation.Verification of Digital Identity
With the recent payment process, individuals have to verify their identity instantly before a transaction is carried out. These can come in the form of repeated login codes and identity checks via a video call which can take much time. Using blockchain payment processing, the vital information of users can be implemented in a private blockchain network and since it's unchangeable, security is ensured. This would in turn speed up identity verification and users can share their data with whomever they want to share it with.