For most of my life, and that of earlier generations, cash has been the most used form of payment, especially for small everyday items like buying a cup of coffee. You wouldn’t think of writing a cheque to the café would you? But in recent years there has been a dramatic shift towards us becoming a ‘cashless’ society. Walk into a bar in London and you’ll notice that hardly anyone pays for a round of drinks with notes or coins any more; it’s a contactless debit card that does the job.
Of course we have been moving towards this for some time. For example, wire transfers appeared in the 1970s, doing away with the need for cheques to be sent in the post. Barclays launched the first ATM in 1967, and Wells Fargo introduced the fist online current account in 1995. Only a few years later PayPal appeared, and it revolutionised the payments system, and then became the preferred system for buyers and sellers on eBay. Fast-forward to 2016 and the emergence of Apple Pay demonstrated the possibilities of using the smartphone for payments.
But in between PayPal and Apple Pay, something else arrived on the scene: bitcoin and blockchain technology. It promised another way to make payments using the distributed ledger. Transactions stored on the blockchain cannot be changed, which makes it arguably more secure than conventional payment methods.
Dr Demetrios Zamboglou points out, “blockchain-based payment technology has incorporated what other innovations sought to do individually. Today, you can send payments across countries within seconds using Ripple, rely on a 4,942 cryptocurrency ATMs spread across 77 countries around the world, and check your account balance in real time.” As he says, there is no central authority needed to authorise the payments (remember when shops used to actually phone your card issuer?) and as he adds, “innovation in payments is at an all-time high.”
What blockchain-based payments systems need now is users. That is why Facebook’s Libra has caused so much interest; it has two billion potential users of its stablecoin.
In a different way Ripple has also made a strong contribution to mass adoption, with numerous financial institutions joining its RippleNet network for cross border payments, including the Federal Bank of India. Using Ripple, a payment can be settled in seconds instead of three to five days. It is also highly scalable, allowing 1,500 transactions per second, which is impressive when compared with the Bitcoin and Ethereum networks that offer 5 and 15 transactions per second respectively.
As Dr Zamboglou says, “these disruptive changes in the financial sector brought about by the use of smart contracts and blockchain technology may soon eliminate intermediaries like banks when it comes to payments.” And the banks have already begun to use more blockchain technology for payments.
Not only will be have instant international payments in the near future, we won’t use cash either. The only question that we don’t have the answer to yet is this: will we be ‘cashless’ using fiat or using cryptocurrency, or a mixture of both?