Depending on who
you listen to, cryptocurrencies such as Bitcoin, Ethereum, and Litecoin will
either change fundamental aspects of people’s daily lives – financial services,
healthcare, retail and, yes, travel – or they’re a sham, a prime example of
much ado about nothing.
There is less
debate, though, about the underlying system that powers those cryptocurrencies:
blockchain. While models are still being developed and hypotheses tested, we’re
starting to see consensus that blockchain may provide a viable – and valuable –
architecture to improve nearly any system that relies on a transaction, whether
that exchange is information, or money or something else.
As part of this
month’s focus on blockchain, we’re aiming to unpack this abstract concept by
sharing real industry examples of how this new decentralized ledger system
could be put into action.
For our fourth
and final report in our Decoding Blockchain series, we take a look at it as a
solution for cross-border payments.
Background
Most of the headlines about blockchain have been about the implications
of this emerging technology on the financial sector – the potential for it to
change banking, share trading, insurance, payments and more.
The inherent characteristics of blockchain make it
well-suited for these sorts of applications.
Blockchain provides a high level of security since it creates
an immutable digital ledger of transactions. Actions can be defined and carried
out by “smart contracts,” which ensure all parties are abiding by the same
rules and which automate (and therefore expedite) transactions.
And blockchain offers transparency because those involved
can see every entry into the ledger of transactions, but at the same time it
provides privacy since transaction details are shared only among participating
parties.
Travel industry
payments
Effective, efficient payment systems are critical for every
entity that provides services in a customer’s travel journey, from online travel
agencies to travel management companies, airlines, hotels and tour operators.
But challenges exist.
According to a December 2016
Phocuswright
study,
Payments
Unsettled: Travel's Complex European Payment Landscape
, more than half of
suppliers and retailers surveyed indicated credit card fraud as their top
payment challenge. Two in five suppliers also said it takes too long to receive
payments and expressed concerns about travel agency defaults.
Current payment management systems are also labor intensive.
About a quarter of the agencies surveyed said they track payments and
commissions manually. Firms with at least €10 million in sales have four or
more staff dedicating 16 hours a week to this function, and firms doing less
than €1 million in sales have at least one staff spending 12 hours per week on
average.
Blockchain for
cross-border payments
Greg Sassone, vice president and head of global product for
corporate payments at
WEX
, believes blockchain could eliminate some of these
issues.
WEX provides payment solutions to travel companies around
the world including HotelTonight and Travelliance. Its travel and corporate
solutions brought in $224 million in revenue in 2017.
“If you think about what are the pain points with
cross-border payments – they take time, they’re expensive, there’s limited visibility
into the transaction,” he says.
“Blockchain checks a few boxes within that space. It’s fast
and it provides that visibility between the two parties at a lower cost.”
Blockchain could also eliminate concerns regarding fraud and
default (since transactions are immutable) and manual processes (since
transactions are automated via the smart contracts).
Sassone says they are currently developing prototypes and
proofs of concept for payments using blockchain. But they are using a different
strategy than usual.
“I always, and my team always, thinks about the use case, the
user experience and the problem first. We start with the need and then we
develop solutions or different technologies to fit that need,” he says.
“One of the things we recognize with blockchain is it has
the potential to be so disruptive, we actually have to break that mold. With blockchain
we are actually looking at the technology, we’re looking at the that innovation
and we’re seeing what use cases or what problems it can solve.”
Sassone says the research and development work is being done
by both his product team and a separate innovation team within WEX.
Looking
ahead, he says they will share their solutions with key customers and partners
for further testing and development before they move into a pilot phase and
ultimately production.
Additional
developments
WEX is one of several companies developing blockchain solutions
for payments.
In October, Mastercard announced it was opening access to
its blockchain solution via an API. In a news release, the company said it is
initially implementing the technology in the B2B space “to address challenges
of speed, transparency and costs in cross-border payments.”
Also in October, IBM unveiled a new blockchain banking
solution designed to reduce costs and facilitate near real-time settlement of
payments on a single network.
The system is already processing live transactions in 12 currency
corridors across the Pacific Islands and Australia, New Zealand and the United
Kingdom with plans to expand during this year.
“With the guidance of some of the world’s leading
financial institutions, IBM is working to explore new ways to make payment
networks more efficient and transparent so that banking can happen in
real-time, even in the most remote parts of the world,” says Bridget van
Kralingen, senior vice president of IBM Industry Platforms.