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The Future of Web3 Payment Systems

The internet is going through a transformation, and Web3 is the new frontier. It is backed by blockchain applications that enable seamless transactions using cryptocurrencies, boosting frictionless global trade. This revolution is slowly making conventional fiat payment systems obsolete. It is no secret that international payments made through traditional solutions can take several days to clear. Blockchain payment solutions allow the process to take a few hours, if not minutes.

Over the years, traditional payment systems have suffered from long processing times, especially when it comes to cross-border payments. Some Web2 solutions, such as PayPal and Stripe, have improved the situation; however, they are not without limitations. For instance, a Web3 version of PayPal will not be able to freeze a user’s account or withhold payment due to an expired proof of address. This is where blockchain solutions come in. They are taking it to the next level with much lower costs, reduced risk, and efficacy.
Blockchain is the Future Top companies in the payment sector seem to understand that blockchain represents the next evolution within the industry. Over the past few years, they have been busy researching and exploring how to use the technology to their benefit. A good example is Mastercard and Visa, who have both partnered with crypto exchanges and wallets to facilitate crypto-related transactions. In the last quarter of 2021, crypto-related payments using Visa amounted to over 5% of all transactions processed by the payment giant. In April 2022, Mastercard announced the world’s first crypto-backed credit card.

Despite these forays, both giants’ core business models remain firmly rooted in Web2, with blockchain sitting as a side-line service. Much work needs to be done to facilitate the widespread acceptance of blockchain-based payment solutions around the world. More research, infrastructure investment, government regulations and directives will be required.

Along that line, a possible solution to developing a global public blockchain-based payment infrastructure could be to develop private blockchains for key players that need to transact with one another frequently. For instance, J.P. Morgan recently launched the Link blockchain specifically designed for financial organizations. In its current state, the blockchain enables an efficient and reliable exchange of information between its participants.

For now, no one knows what the future holds for Link; however, there is a chance that the platform or a future competitor could become a platform for instant and secure inter-bank payments, eventually evolving into a universal Web3 payment system. If this happens, then there can be no guarantee that the benefits realized by those within the “exclusive club” would be passed on to non-members, such as consumers. That said, the only challenge with private blockchains is their lack of transparency for financial institutions, whose reputations have already been tarnished by past scandals.

Other Industries Will Benefit A private blockchain can also help many other industries such as insurance companies, airlines, and any other industry riddled by costs, friction, and anomalies when transacting with multiple counterparties. As products and trade become more complex, revenue and liability recognition are becoming more challenging for these industries. For instance, in the airline industry, the total revenue collected from the customer needs to be allocated to multiple parties based on nuanced code-sharing arrangements such as in-flight enhancements, seat selection fees, luggage upgrades, airport car parking, and terminal throughput, etc.

Trying to work out pay-outs for all the parties involved, especially if there are delays or cancellations, can quickly descend into chaos, with final outcomes potentially reliant on judgment calls. Therefore, having all the players operating within the same blockchain can completely automate the process and, thanks to smart contracts, remove dependence on trust and erroneous errors.

As things stand, it seems like we are on the brink of the Web3 payment revolution. Given their enormous budgets and resources, it is entirely possible the revolution is going to be driven from the top, with initiators being Web2 or even Web1-based payment processing giants. At the same time, there is no ruling out a crypto-native startup reinventing the playing field instantly. And we are already witnessing the launch of several decentralized-based Web3 payment solutions that address the downside of centralization and offer a seamless payment experience.

These protocols are removing most of the barriers that currently stand in the way of mass adoption of Web3 payments, such as perceived ease of use, increase in the number of acceptable tokens, any-to-any conversion functionalities and so on. Businesses can benefit by integrating with such solutions as they help them accept any tokens or assets their customers hold in their wallets since most of them are interoperable, scalable and flexible