Today’s consumers expect convenient, secure and easy-to-use payment options for retail purchases. Digital payment methods like mobile wallets and peer-to-peer applications check all the boxes, so it makes sense that 74% of consumers prefer to use them over cash or checks.
The problem? Not all retailers have a payment infrastructure in place that can sanction seamless and secure digital transactions. And without omnichannel and digital payment options at their fingertips, consumers can (and likely will) turn to a competitor for their favourite products.
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 proliferate into industries like supply chain management and telecommunications in recent years. Although there’s no silver bullet to the payment challenges facing modern retailers, there is potential for blockchain to serve as the foundation of payment infrastructures that support all types of fiat money transactions.
Legacy systems can’t keep pace with new payment methods
Consumers are demanding more from retailers when it comes to payments — including a broader range of digital, omnichannel payment options. Purchasing avenues like buy now, pay later and mobile payment services are mainstream, and newer methods like voice-activated payments with smart speakers are gaining popularity as consumers seek the easiest, fastest way to buy products.
In a perfect world, every retailer could accept any form of payment. Many are doing their best to adapt and keep up with consumer demand by offering experiences like self-checkout kiosks and buy online, pick up in store services. Brands like fashion retailer PacSun even started accepting cryptocurrency as a form of payment in October 2021 to give shoppers a convenient 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 fail to support secure omnichannel and digital transactions.
Legacy systems are nearly impossible to modernise. The complexity of building on legacy payment systems is a lot like adding a second storey to a 300-year-old single-storey bungalow — risky and costly. A complete overhaul of payment infrastructures requires hardware upgrades and software updates to aggregate and track various payment flows, neither of which are a small feat (or cost). Supporting additional payment options also introduces more third-party players, all of which charge retailers payment processing fees.
At the end of the day, retailers need a fast, secure and trackable method of moving money from point A to point B. Legacy systems don’t always meet these requirements, but revamping systems that are over half a century old incurs costs for retailers and creates hiccups for 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 (NFTs). Given the technology’s ability to track and record transactions (without the complexities of card networks and gateways), it wouldn’t be surprising if blockchain became a key player in the retail payments space.
With this in mind, here’s how blockchain can solve some of the top payment challenges for retailers — and pave the way for seamless, omnichannel payments for consumers.
- Increased transparency and security: As a retailer, you’ve likely relied on a centralised payment system that lacked transparency into the backend of payment processing. Fortunately, fraudulent behaviour is much easier to detect with blockchain’s distributed ledger technology because it increases visibility into your transaction records’ history.
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 alter the record, making it even more resistant to manipulation.
- Reduced operational costs: Transaction charges like interchange fees and payment processor fees can add up, costing around 1.5% to 3.5% of every transaction. Blockchain technologies eliminate the need for third parties to facilitate and maintain payments and records, removing the intermediary. This enables you to manage financial processes on your own, reduce overhead costs, and increase backend efficiency and speed.
Blockchain-supported payments may or may not become a key feature of the retail payments space. For them to become a reality, retailers and financial institutions need to develop a regulatory framework that addresses chargebacks, volatility and security and privacy issues.
However, even though hurdles currently prevent widespread adoption of blockchain in retail, players in the blockchain space are actively working to solve these problems — and the use of blockchain technology remains on a steady incline. Projects and applications developed on blockchains are popping up nearly every day, so it’s important to consider potential blockchain use cases in the payments environment and stay current on the latest trends.
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