In the past, value exchanges took place between royalties, traders and commoners, all of whom used gold, silver, livestock and other physical goods to flourish and survive. That ended when the U.S. arrived in 1971. Completely separated from the gold standard, the dollar and other world monetary regimes accepted floating exchange rates.
For the past 50 years, in the face of fintech disruptions such as virtual currencies, electronic ledgers and decentralised protocols, financial institutions have developed payment networks that are partly obsolescent. Fintech founders are more attuned to the high demands of a youthful, digital crowd who with a touch of a phone button, buys products from across the world and can be shipped by Amazon in a few hours.
By being almost automatic, inexpensive and stable, frictionless networks such as distributed ledgers remove barriers to cross-border payments, remittances and data transfers. Such successful sales unlock greater economic growth and foster prosperity. In this way, new buyers can shift value with effectiveness and circumvent needless red tape.
In the payments industry, developers are developing new technologies and producing creative innovations that enable banks and customers to transact at any time, anywhere.
Settlements in Real-time
Global payment firms, unlike most businesses, must operate at the pace of now: receivers want their money immediately, and senders want to rapidly resolve matters. It’s all about being frictionless, which means transferring digital money (or data) at low cost, in real time and without hassles at home or across borders.
Millennials have a mentality distinct from past generations. Instant satisfaction and immediacy was welcomed by mainstream society. Most assume that transmitting digits from a sender’s electronic screen to a receiver may not be that difficult.
A next-generation payment network that makes real-time payments online and via smartphones was introduced by Japan-based Soramitsu last year. The blockchain technology of the venture is quicker, cheaper and solves development challenges such as when individuals are “unbanked.” For example, in Cambodia, 78 percent of the population above 15 years of age do not have access to banking services. The app registered thousands of actual users in six months.
Project Bakong by Soramitsu helps participating banks and consumers to transact directly and more effectively through a network supervised by the central bank of Cambodia. It’s the ultimate acceptance stamp. The organisation is also carrying out mobility solutions that give the unbanked population of Cambodia access to smartphone payment services.
Inoperativeness for other structures
In order to create legacy payment systems, banks have spent large amounts. Financial companies, however must now not only design structures and structures that integrate cutting-edge technologies, but also fulfil greater demands of customers. Legacy is incompatible with the networks of other banks or payment processors. When submitting and collecting orders, this leads to high rates, lengthy waits and annoyance with clients.
Tokenization solves the interoperability problem by leveraging a common token that participants use to easily and securely pass value (or data). In the case of Soramitsu’s Bakong Initiative, the network enables participants (i.e. banks) to use token transactions to transact directly. By avoiding conventional business procedures such as transition orders, liquidation and payment confirmations at a later date, this approach dramatically speeds up settlements.
In order to boost remittances between those nations, Cambodia, Malaysia and Thailand are also experimenting with QR scan codes. The QR codes are compliant with EMVCo and can be used to send and receive local currency denominated payments.
There are several businesses, banks, payment processors and remittance firms in the financial ecosystem. But having so influential members produces protocols, terminology and procedures that are divergent and incompatible. There is misunderstanding and red tape. And the net expense to the customer can be debilitating as each establishment charges a premium.
Fintech entrepreneurs are lowering payment obstacles, contributing to higher economic growth and new income. Innovations such as Bitcoin, cryptocurrency, tokenization and peer-to-peer networks are being looked into by digital-savvy customers. These are revolutionary innovations that demand the adaptation of a massive, entrenched ecosystem.
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