Recently Ripple launched its “Blockchain in Payments Report 2018”.  Main finding of this Report was that global payments based on this technology is reaching critical mass this year. And on top of that organisations are already ‘looking to incorporate digital assets into payments flows’. I was wondering where these findings were based on, so this blog. But what is even more important, did they also tell the whole storey: i.e. what about the various challenges?

Blockchain and cross border payments

The Ripple report showed, a fast majority of respondents acknowledged that improvements in cross border payments can be made, especially in regards to the pre-funding system and real-time gross settlement (RTGS), and that may help expand business scope and sale.

According to Ripple, the consequence of this is, if they want RTGS for global payments ‘without any incremental costs’, the only way to achieve that is by using blockchain and digital assets to source liquidity.

Blockchain’s potential

Respondents did not only acknowledge that blockchain could bring improvements to cross border payments, they also attribute benefits such as speed and greater geographic access to this blockchain technology. Of these benefits speed ranked first (42%), followed by greater geographic access (40%), cost reduction (38%) and, improved transparency (36%).

Respondents in the financial and broker area show the strongest recognition of blockchain’s potential: 60% were very interested; followed by FinTech (47%); and, banking (46%). Based on the services provided remittance providers showed the strongest recognition of blockchain’s advantages (49%).

Nearing blockchain momentum

The findings in the Ripple Report clearly showed that blockchain is ‘moving from experiments to production’  in 2018. And acceptance of blockchain technology will accelerate in the coming five years.

There are various indicators for that. The activity of the so-called Early Majority, including innovators, early adopters and those that are running blockchain pilots or PoCs  (totalling 45% of all respondents) are convincing signals that ‘we are nearing the tipping point for mass adoption of blockchain’, says the Report.

Another interesting finding is that while first movers (mostly large companies), thus those that already have started deploying blockchain technology in production as a way to survive in their markets, ‘ stand to lose most in the face of’  the smaller, more agile mid-market organisations that make of the largest part of Early Majority and Late Majority groups.

The Early Majority is moving the fastest

The Early Majority, who see potential to access new markets and improve speed, and Late Majority, recognising potential for speed, transparency and reliability, represent the group that is moving the fastest from experimentation to production. They are more likely to leverage blockchain technology in international payments across multiple product and service offerings in the next two years.

This is also the group of companies that, once the regulatory structure is in place for digital assets, and they are leveraging the appropriate business case to justify the investment in blockchain, will be the ones to ‘surge ahead and tip the scale of adoption’, according to the Report.

The Report findings also showed that approx. a quarter of those involved in payments will be implementing a blockchain product or solution sometime in 2020. Accelerated adoption and progress will be seen in the following two years towards 50% in 2022. This signals interest to mass adoption is fast approaching.

Digital assets

Another interesting finding in the Report is the growing interest in digital assets. Especially for use in settlement and/or as a base currency.

Respondents see the adoption of digital assets as a ‘natural next step’ of the growing implementation of blockchain and ‘ the quest to monetize it through the network effect’ .

Main areas of interest are remittances, digital wallets, accounting software and messaging app providers. This especially goes for mid-sized to large institutions.

Specific advantages

According to many respondents there are some specific advantages. The main advantages selected for digital assets were the same for use of blockchain. There was also near 100% consensus across industry and service types. But the ranking is different.  While for blockchain these were: speed, geographic expansion and lower costs, for digital assets the ranking was: speed, lower costs en geographic expansion

The strongest predictors of interest were extent of pre-funding (top driver), customer satisfaction and interest in RTGS.

The findings showed that 85% of those using blockchain in production and 90% of those moving to production shortly are either ‘ extremely’  or very interested in using digital assets as a form of payment.

World Payments report 2018: Remaining challenges

All these findings are interesting indicators of the present attitude and future stance of the industry for blockchain use in cross border payments. What is however missing in the Ripple Paper is how the industry is trying to meet the various challenges they are confronted with.

The World Payments Report 2018 that was published on 16 October has found that blockchain technology is not currently capable of meeting financial market demands. In the report various challenges were addressed facing blockchain adoption. Of all the participants in the poll, 85.9 percent cited lack of interoperability, 83.1 percent lack of regulatory clarity, and 77.8 percent the scalability issue, as factors that are limiting blockchain adoption. Over 60 percent of respondents highlighted problems as security, cost of implementation, and time required to add a block to the transaction.

The issue of whether blockchain is scalable enough to meet certain market demands has been of concern to many industry players. A lack of interoperability between DLT and banking systems purportedly stymies the implementation of scalable solutions.

“Multiple DLT systems create a fragmented market with limited connectivity between solutions, which leads to inefficiencies and limited adoption.” World Payments Report 2018.

According to the Report, the legal risk for DLT is represented by an uncertain regulatory environment and a lack of legal frameworks in most countries.

We are not there yet …..