7 ways blockchain technology is changing the payment industry

By re-ordering and automating complex, labor-intensive processes, blockchain technology can enable organizations of all sizes to run faster and more efficiently. As a result, blockchain technology opens up entirely new possibilities for product and service innovation.

Just last year, many financial institutions, including many of the world's major banks, have shown a keen interest in the technology behind Bitcoin and have launched programs to explore its potential. As expected, the amount of investment in blockchain technology has grown rapidly, especially with the many applications that have been identified, including using blockchain technology to transfer any digital asset; record the ownership of personal physical property and intellectual property, improve the system and security performance of financial product and service delivery, and other applications of significant importance to banks and other financial institutions.

While there are many significant developments and opportunities, here are the areas of focus for companies and regulators, including faster payments, supply chain management, payment methods, compliance and risk management:

1. Settlement time

Blockchain technology will also significantly reduce the time it takes to settle funds, which in turn will reduce the amount of cash and collateral that financial institutions bear, thereby reducing settlement risk. This is particularly important in international transactions, as these transactions currently take days to complete, but using blockchain technology can be completed in almost no time.

2. Supply Chain Management

By providing a granular tracking of commodity movements, blockchain technology will be able to provide a highly secure fraud-proof system. Everledger is a London-based startup that specializes in registering and tracking individual diamonds, recording their provenance, tracking asset ownership and combating insurance fraud.

3. Smart Contract Payment

Using digital technology to embed business rules into smart contracts, including automatic execution and payment of contract terms, will simplify complex procurement, negotiation and verification procedures, allow contracts to be customized on a contractual basis, and greatly simplify transactions by removing competitors and intermediaries. IBM is investing in a proprietary blockchain that makes electronic contracts more convenient, and plans to release an open source version that anyone can use.

4. Algorithm rules

Blockchain technology can also track every transaction history of the banking system to ensure that the source, final destination and purpose of funds are clear and traceable, which will improve the ability of banks and regulators to identify suspicious customers and networks. Government agencies can also use blockchain technology in the system, such as the federal settlement system, which enables bank regulators to identify system payment risks.

Blockchain will also affect payments in investment and real estate transactions

5. Transaction Execution and Settlement

Blockchain can achieve faster settlement at lower costs while reducing the risk of fraud. Many companies are developing unique and powerful trading and settlement products, such as Nasdaq's private Linq blockchain network, which enables private companies that have not yet met the requirements for public listing to track changes in the ownership of issued shares by founders, early investors and employees.

6. Asset Trading

Blockchain will enable new types of transactions, facilitating the trading of a wide range of assets beyond financial instruments. The current thinking is that this will involve the trading of virtual tokens, including physical or intellectual property. Earlier this year, R3 CEV Technology conducted a test to trade tokens representing hypothetical assets through a private blockchain application, with participating banks including Barclays, Financial Group, Credit Suisse, Commonwealth Bank of Australia, HSBC, Natixis, Royal Bank of Scotland, TD Bank, UBS, UniCredit and Wells Fargo.

7. Physical asset registration

Blockchain will streamline the process of registering assets, including real estate. Many expect blockchain to significantly change or eliminate title insurance, which is used to confirm the accuracy of local government property registrations. Blockchain is also expected to facilitate the establishment of instant price comparisons and the tracking of third-party payment contracts. Several startups, including Ubitquity, LLC, Factom, are building platforms designed to track property ownership.

For financial institutions exploring opportunities in blockchain, 2016 will be a year of continued innovation and experimentation. However, it is reasonable to expect continued improvement and innovation to accelerate wider use and acceptance of blockchain, with the benefit of prompting competitors to further accelerate adoption of new applications.

Kevin Petrasici is both a partner of Matthew Bornfreund and a partner of White &

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