Key Takeaways
- Primary Keyword: Web3 and blockchain-based payments
- Focus: Interoperability, governance, mass adoption
- Tone: Conversational, engaging, UK English
Blockchain-based payments are showing real promise in delivering seamless payments for everyone. As the space evolves, what can we expect in terms of mass adoption? Let’s dive in.
Web3 and Blockchain in Financial Services: Are We There Yet?
“When you look at the news, you still see just the bad side of [blockchain technology in financial services],” says Web3 expert Rita Martins.
“You see the big collapses, the FTX problems, and so on. So I wanted to write a book that really explains some of the use cases, what it means for someone working within financial services. It’s still an evolving space, so what are some of the changes or things that need to change within the ecosystem for it to really be mass-adopted by financial services?”
Martins’ time at HSBC involved trying to integrate blockchain technologies with the bank. “When I started looking, it was too early; the technology was too early.”
But times have changed. Uptake is increasing in the legacy banking world. “Given some of the things happening around regulation, banks have really tested this technology. They see the value, and you have big names like BlackRock, for example, really going for it. It’s definitely a change in the blockchain environment, and I think it’s really showing the benefits,” she says.
Stablecoins and Emerging Markets: A Game-Changer?
Martins highlights the use of stablecoins in emerging markets, particularly for cross-border remittances. In the Philippines, for example, people working abroad send money home using stablecoins, which is faster and cheaper.
Emerging markets present a unique opportunity for these technologies to make a significant impact. Stablecoins, being more stable than other cryptocurrencies, can offer a reliable means of transferring value.
Tokenization of Real-World Assets: New Collateral Models
Tokenization of real-world assets is another promising area. Companies like Goldfinch Finance use real-world assets as collateral for loans in emerging markets.
Major players like BlackRock are also entering the fray. BlackRock issued a Bitcoin ETF earlier this year and announced the company’s “first tokenized fund issued on a public blockchain” — the BlackRock USD Institutional Digital Liquidity Fund (BUIDL).
The big value of tokenization lies not just in creating digital versions of assets, but in what can be done afterward. For example, assets can be used as collateral, providing more liquidity and reducing costs.
Central Bank Digital Currencies (CBDCs): Privacy and Trust Issues
CBDCs are gaining traction globally, but privacy remains a major concern. Consumers and companies are unlikely to want to share their spending and payments data. Different countries have different approaches to data collection, with China being aggressive and the European Union being more privacy-conscious.
Martins points out that educating the consumer will be crucial. Many central banks are considering privacy layers to address these concerns. However, cross-border payments introduce additional challenges, such as interoperability and differing regulations.
Challenges for Financial Institutions Implementing Web3 Technologies
Uncertainty and a lack of regulatory clarity have hamstrung the industry for years. Traditional banks are hesitant to fully embrace the space until more regulations are in place.
Public blockchains offer transparency, which is great for some use cases but problematic for financial services needing client information privacy. Transparency issues also arise because companies don’t want competitors to see their data.
Martins envisions a future where public blockchains evolve with privacy and compliance layers, leading to interoperability between different blockchains and legacy systems.
ISO 20022: Regulations, Controls, and Protection
Fintech companies are preparing for greater interoperability by ensuring compliance with ISO 20022. Even DeFi projects with decentralized governance are looking to register as entities to tap into traditional finance liquidity. This requires compliance and privacy layers.
The Future of Blockchain Technology and Decentralized Finance in Financial Services
As technology evolves, consumers won’t necessarily know whether they’re using blockchain. This will be similar to how they don’t know if their bank uses cloud or on-premise solutions.
Blockchain and related tools will become just another part of the financial services toolkit. The focus will shift from the technology itself to what it enables.
Related: Startups Should Not Aim To Build AI Products; But To Solve a Customer Need Gap
Conclusion
The future of Web3 and blockchain-based payments is promising, but challenges remain. Privacy, interoperability, and regulatory clarity are key hurdles that need to be addressed. However, as technology evolves and adoption increases, these issues are likely to be overcome, paving the way for blockchain to become an integral part of the financial services landscape.
Photo credit: BFA Global
