Blockchain Next Big X-Border Payments Disruptor

Blockchain may be among the buzzier of buzzwords as 2021’s end is in sight and 2022 looms near.

At a high level, the shared, immutable ledgers have the potential to change the way we interact with each other and with financial institutions. Jason Chlipala, COO at Stellar Development Foundation, told PYMNTS in an interview that banks can use blockchain to realize cost efficiencies and boost financial inclusion, and perhaps even revolutionize finance.

Only a little tongue in cheek, he told PYMNTS that “I work for a technology company, so I’m legally obligated to say ‘paradigm shift’ at least once in every conversation, but I really do think we are seeing a paradigm shift.”

He noted that payments have seen waves of tech-led changes in recent decades, where physical money has given way (at least in part) to electronic money, and the card networks have underpinned the development of a safe, efficient payment system. But safety, he added, means controlling and securing the rails and the databases themselves.

“The paradigm shift that blockchain technology allows is you can now build safe, efficient payment systems on common or shared infrastructure,” he said. Against that backdrop, he said, commercial banks (and conceivably, even central banks) can work together to transact in a more interoperable and more efficient way. Digital assets, he added, are increasingly being perceived as playing an important role in financial institutions’ (FIs) businesses going forward.

Among the advantages of blockchain in the service of payments (and with networks like Stellar), Chlipala said: Asset issuance is easy, as is connection into the existing financial system. Transactions can be done at scale, and cheaply.

The Mechanics 

Asked by PYMNTS as to whether FIs will want to embrace open or closed networks, Chlipala said that though a key attraction toward the blockchain may be its open, permissionless nature, some firms may want to work with a closed infrastructure.

In that example, Chlipala explained, a bank issuing a stablecoin might want to have an “auth required” setup in place, where accounts must be authorized to hold those assets. This also means that the FI can conduct the relevant know your customer (KYC) activities.

He added that open designs mean that assets on Stellar or any other permissionless network can interoperate seamlessly with other networks, through application programming interfaces (APIs).

As he told PYMNTS, “We at Stellar believe that open, permissionless networks will play an important role in payments and the broader financial system going forward.”

Supplementing, not Supplanting  

Instead of supplanting the financial system, “we want to supplement it,” Chlipala said, adding that “fiat money isn’t going anywhere, and existing financial institutions like commercial banks will remain an essential part of the entire system.”

With those hallmarks in place, he said the co-operation between existing and new technologies and rails can improve financial inclusion.

“Remittances remain a huge business,” Chlipala said, where $500 billion of remittances cross borders every year, averaging $200 to $300 a transaction. Using traditional means and the correspondent banking system to send money means that the fees on those transactions can range from 7% to 15%. But blockchain and digital networks can shave the time it takes those transactions to seconds and the cost to fractions of pennies, Chlipala said.

Looking ahead, he said that as FIs leverage the blockchain, they can build new cross-border corridors while attracting a new group of customers — particularly those interested in new cryptocurrency use cases and decentralized finance (DeFi).

“Offering different services and allowing those customers to ‘hook in’ to these digital asset-based use cases can create additional revenue streams,” Chlipala said, “which could be a digital wallet in which customers can hold stable coins that they would then put on exchanges or use in DeFi activities.”