Blockchain in the Payments Industry: Digital vs Fiat Currency Part 2
24 September 2019
Blockchain’s foundational technology: A revolution
Following on from our first blog, could blockchain – the technology that underpins all of the fantastic use cases previously discussed – really disrupt today’s global financial and payments systems? And, if so, what are the implications for governments, businesses and individuals?
By its very nature, blockchain offers the potential for quicker, more customisable, more transparent and less costly payments systems, which can act in isolation or part of an integrated network of other business functions. In these systems digitalised assets and currencies can function either as a replacement for, or a complement to, fiat money.
PwC has led from the front in this space, collaborating with the South African Reserve Bank (SARB) to investigate a digital representation of the Rand for interbank wholesale settlement, producing an award-winning proof of concept. The results showed that the typical daily volume of the South African payment systems could be processed in less than two hours with full confidentiality of transactions and settlement finality.
Since this work, the market has seen the development of a new type of currency - Libra- which is centrally governed by a committee and based on a reserve of global low risk assets, with a decentralised functionality that allows for enhanced cross border payments and encourages financial inclusion.
Greater financial inclusion with blockchain
Decentralised or centralised, public or private - blockchain systems address key issues such as lack of transparency, costly infrastructures, time-consuming third-parties and low-dimensional platforms - the result is added traceability, auditability, and operability.
The cost saving feature is perhaps most prominent though. Until now, the costs of remittance were approximately 5%. With blockchain this reduces to less than 1%, whilst providing guaranteed, real-time transactions across borders, reducing the risk of loss due to currency fluctuations.
With global remittances valued at $689 billion in 2018, the savings potential is obvious and significant.
The impact of this is perhaps to be most felt by the unbanked and low income countries - remittance providers in Africa charge fees of 10-20% – a considerable expense for those with limited means. The global remittance market is projected to grow to $1.413 trillion by 2025, with the greatest growth rates in Sub-Saharan Africa; removing steep remittance fees could mean more disposable income for those who need it most, helping to alleviate poverty and reduce income disparity.
This is just one example of the real-life human benefits blockchain could deliver.
Blockchain technology could also bring disruptive change to key industries. Imagine, for example, the potential for multi-dimensional political, social and economic systems all based on a single network. Or envision a world where education records, insurance claims, movement of assets and citizen identification systems all work off a blockchain infrastructure. PwC explored such future scenarios in detail in our joint report with the Federation of Indian Chambers of Commerce & Industry (FICCI) on smart cities in India.
Stay tuned for our final blog in this series which discusses how Blockchain can optimise key industries.