Blockchain technology could save global companies $550 billion in payment costs each year

杰里米•埃尔曼德is the founder and CEO of Paystand, a payments-as-a-service platform. Jeremy is an active speaker on next-generation payment technologies, including Bitcoin’s blockchain technology. In this article, he explores whether open Internet standards and blockchain technology can solve the inefficiencies of traditional payment methods.

Checkbook and checks

In today’s globally connected, digitally driven golden age of the internet, it might surprise you to see businesses still paying for goods and services the old-fashioned way with checks.

According to a recent report by Goldman Sachs, checks still account for at least 50% of B2B payments, and while credit card payments are faster and more convenient, they are too costly for merchants.

Even though we’re living in 2015, we’re still processing $26 trillion in transactions every year through an ancient payment method that was invented 2,000 years ago, all because we don’t have a reliable digital payment solution.

What is the cost of continuing to use paper checks? Calculate the money and time you spend processing check payments and you'll find that the actual cost per check is about $8, not including the cost of human error and fraud losses.

All in all, legacy payment systems cost global businesses $550 billion in additional costs each year.

This is all unnecessary spending caused by the inefficiency of the traditional payment system. Wouldn’t it be better if this money was saved and used to create more jobs, manufacture better products and promote economic development?

Get the most out of your capital

Therefore, companies can either choose to seize this rare opportunity to innovate payment methods to reduce huge expenses and save costs, or continue to be content with the status quo and bear the risk of being left behind by the times and competitors in the future.

According to a Goldman Sachs study, if companies adopt innovative digital payment solutions, the world could save $57 billion in net costs each year.

Many Fortune 500 companies still use antiquated payment systems (much to the embarrassment of their IT staff) and would find greater benefits if they switched.

Some third world countries can skip traditional payment methods and directly experiment with digital payment systems. They can even use blockchain technology, which is more efficient.

In addition to the inefficiency mentioned above, the traditional payment system has another problem, which is more harmful in the long run, that is, the lack of ability to track payment information.

While companies often invest significant amounts of money in their enterprise resource planning and accounting systems, in reality, payments themselves are often not connected to these business engines.

In this era of big data, traditional payment systems are unable to provide automated and globally accessible tracking information dissemination to corporate financial systems.

So, how can businesses ensure that when they switch to digital payment methods, they are able to achieve the lowest costs and tap into the wealth of data.

The answer is an Internet technology called Financial Services Markup Language (FSML), which you may have never heard of.

Like HTML, FSML is a structured language developed specifically for financial transactions, including electronic checks, the evolution of paper checks.

FSML enables electronic check transactions to carry an unlimited amount of data. FSML is built in an open language that can be read and shared between databases and applications.

FSML addresses a key limitation of analog checks and traditional automated clearing house (ACH) and electronic funds transfer (EFT) transactions, which restricts additional data to a limited number of codes.

When a company moves away from paper checks and toward electronic checks, their transactions can be accompanied by rich data that can be synced between ERP, CRM, and supplier-facing websites. They can connect the dots between procurement, payables, and payments.

The arrival of the era of machine-to-machine payments

The electronic check standard using the FSML language is an open technology that businesses can use to digitize their payments. But this is just the beginning of how this technology can change the way payments are made.

We can imagine a not-too-distant future where businesses begin recording transactions on blockchains, and even fully automated payments can be made between trusted parties (or even between machines).

Imagine a world where business agreements are executed by digital smart contracts.

For example, “net-30,” a business term that requires companies to pay invoices within 30 days, could be automated in the future, while buyers could use digital agreements to track the delivery of goods before paying.

Escrow systems, third-party agents and intermediary networks should reflect on how they can be more efficient.

The race to innovate payment methods has begun. Whoever can take payment issues seriously and take action to use open technology standards to build better payment methods will win the market.