Payments, especially those across borders, are often touted as a key use case and value proposition for the blockchain industry, says Paul Brody, Global Blockchain Leader for EY (Ernst & Young). Unfortunately, a look at both the technology, competition, and regulatory environment doesn’t really support that idea.
The launch of FedNow by the Federal Reserve in late-July is a good occasion to take a look at why, for most people and companies, the value proposition of using crypto or blockchains for basic payment services isn’t very appealing.
Transaction fees for FedNow are expected to be in the range of $0.05 each or less, while Bitcoin fees average around $1, and transaction fees on Ethereum are similarly high and variable. Blockchains and crypto ecosystems have compelling advantages in other areas, but fiat payments aren’t one of them.
Path dependency is another obstacle to widespread adoption of blockchain payments. We already have widely deployed simple payment systems linked to debit cards and bank accounts, and blockchain payments are at best price competitive, but without many advanced features that retailers and others depend upon.
Cross-border remittances are often cited as particularly promising for blockchain and crypto, but the root cause of high fees and lack of services isn’t a technological one that can be fixed with blockchains. The real obstacles that add cost are often regulatory, infrastructure, or a lack of competition.
Blockchains have immense value to create in the payment space when it comes to tokenization and making payments in the exact same ecosystem in which you take delivery of the item you are buying.