Is blockchain the future of retail payments? – 365 DETAILS

by Arthur · February 16, 2023

Today’s consumers expect convenient, secure and user-friendly payment options for retail purchases. Digital payment methods such as mobile wallets and peer-to-peer applications tick all the boxes, so it makes sense that 74% of consumers prefer to use them rather than cash or checks.

The problem? Not all merchants have a payment infrastructure in place that can sanction seamless and secure digital transactions. And without omnichannel and digital payment options at hand, consumers can (and likely will) turn to a competitor for their favorite products.

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Enter blockchain – a type of distributed ledger technology (DLT) that records transactions and ownership of digital assets. Blockchain’s initial use cases were limited to cryptocurrency, but we’ve seen the technology spread to industries such as supply chain management and telecommunications in recent years. While there is no silver bullet to the payment challenges facing modern retailers, there is potential for blockchain to serve as the foundation for payment infrastructures supporting all types of fiat money transactions.

Older systems cannot keep up with new payment methods

Consumers are demanding more from merchants when it comes to payments – including a wider range of digital, omnichannel payment options. Purchase options such as buy now, pay later and mobile payment services are mainstream, and newer methods such as voice-activated payments with smart speakers are increasingly popular as consumers seek the easiest and fastest way to purchase products.

In a perfect world, any retailer could accept any form of payment. Many are doing their best to adapt and keep up with consumer demand by offering experiences such as self-checkout kiosks and online purchase, pick up in store services. Brands such as fashion retailer PacSun even started accepting cryptocurrency as a payment method in October 2021 to provide customers with a practical and unique customer experience. But while these are steps in the right direction, the reality is that many merchants rely on legacy payment systems that do not support secure omnichannel and digital transactions.

Older systems are almost impossible to modernize. The complexity of building on legacy payment systems is a lot like adding a second floor to a 300-year-old one-story bungalow—risky and expensive. A complete overhaul of payment infrastructure requires hardware upgrades and software updates to collect and track various payment streams, neither of which is a small feat (or cost). Support for additional payment options also introduces more third-party players, all of which charge merchants payment processing fees.

Ultimately, merchants need a fast, secure, and traceable method of moving money from point A to point B. Legacy systems don’t always meet these requirements, but retrofitting systems that are over half a century old adds cost to merchants and creates hiccups for the customers. So, where does this leave retailers?

How blockchain could disrupt the retail payments space

Blockchain has already made its mark in the gaming industry and in the exchange of non-fungible tokens (NFT). Given the technology’s ability to track and record transactions (without the complexity of card networks and gateways), it would not be surprising if blockchain became a key player in retail payments.

With that in mind, here’s how blockchain can solve some of the biggest payment challenges for retailers—and pave the way for seamless, omnichannel payments for consumers.

Increased transparency and security: As a retailer, you’ve probably relied on a centralized payment system that lacked transparency in the back end of payment processing. Fortunately, fraudulent behavior is much easier to detect with blockchain’s distributed ledger technology because it increases visibility into the history of transaction records.

Additionally, blockchains span hundreds (sometimes even thousands) of nodes, eliminating a single point of failure for fraudsters to steal payment information. And once transaction data is added to a blockchain, it’s immutable—no one can change the record, making it even more resistant to manipulation.

Reduced operating costs: Transaction fees such as intermediary fees and payment processor fees can add up and cost around 1.5% to 3.5% of each transaction. Blockchain technologies eliminate the need for third parties to facilitate and maintain payments and records, removal the intermediary. This allows you to manage financial processes on your own, reduce overhead costs and increase backend efficiency and speed.

Blockchain-backed payments may or may not become a key feature in the retail payments space. For them to become a reality, retailers and financial institutions must develop a regulatory framework that addresses chargebacks, volatility, and security and privacy concerns.

However, while obstacles currently prevent widespread adoption of blockchain in retail, players in the blockchain space are actively working to address these issues – and the use of blockchain technology continues to steadily increase. Projects and applications developed on blockchains appear almost every day, so it is important to consider potential blockchain use cases in the payments environment and stay up to date with the latest trends.

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