26 Feb Blockchain’s role in ASEAN’s evolving payments landscape
2018 marked a rollercoaster year in cryptocurrencies as the price of Bitcoin surged to record highs of almost $20,000, to lows that we are currently seeing. Many commentators are now saying that volatility of this nature is the norm that the market has to live with.
The public profile of cryptocurrencies has grown progressively this year, fueled by price volatility, security breaches and regulatory scrutiny around the world. However, the underlying technology, blockchain (or distributed ledger technology), and its practical application couldn’t be further from the bubble-like properties that the cryptocurrency asset class has become so famous for.
Today we’re seeing blockchain technology expanding into other sectors like data collection, cloud store, digital ownership and even trade. However, one sector that has been mooted to benefit more than most from this technology is payments.
The building-blocks of change
To put it simply, a blockchain is a network of distributed pieces of information. The information, let’s take payment data as an example, is records of transactions. Each block is connected to the one before and after it, which makes it impossible to tamper with. If a hacker were to change a single transaction, every single block in the chain would have to be tampered with for it to go unnoticed.
But what is it about this technology which makes it a viable solution for payments?
The answer is that there are several reasons why it could work. First, fraud remains a key issue in payments globally, including across Asia. Earlier this year, the AFP Payments Fraud Survey revealed that payments fraud in the US had hit a record high with78% of organizations impacted, a trend that has also been noticed by many companies in Asia and set alarm bells ringing.
Improving security and preventing fraud could be one winning application for blockchain. The blockchain is distributed across peer-to-peer networks that are continuously updated which prevents changing one element of the chain. This distributed ledger is accessible from multiple locations, so the larger your network of users, the more secure the network becomes.
Records on the blockchain are secured through cryptography. The participants each have their own key, the equivalent of their own personal digital signature. If a record is tampered with, the peer network is alerted as the signature becomes invalid. This creates a secure environment for processing payments, and sensitive payment information.
As an investor in payments businesses, we support approaches to innovation that move us towards interoperable, cross-border payments. While it’s still early days we are investing now in blockchain solutions within our own portfolio. We want to offer the best possible value to our customers, supported by an exceptional user experience. For cross border transactions blockchain has the potential to enhance both through lower costs and avoiding slow, complex legacy payment platforms.
But is it working right now?
To date, there have been numerous examples of how blockchain technology is being applied to payments globally, especially in Asia.
Ripple, a blockchain firm, made waves earlier in the year when they announced their app ‘Money Tap’. The app, through blockchain technology, settles transactions instantly and will work with a consortium of 61 banks in Japan.
Even traditional banks are making the switch to blockchain technology – OCBC Bank, one of Singapore’s most established banks, also became the first bank in South East Asia to use blockchain technology in its payments services. In September 2018, one of the world’s major music festivals, Ultra Taiwan, announced that they will be the world’s first music festival to run its events payments on blockchain technology.
This momentum isn’t surprising given the guidance from regulators in the region on how blockchain technology should – and should not – be used. Ravi Menon, head of MAS, Singapore’s central bank and regulator, is outspoken in his concern about cryptocurrencies, but not the application of the technology in other use cases.
Singapore is in many respects leading the charge when it comes to applying blockchain technology to payments. Project Ubin is a MAS led-initiative to see how blockchain can be used for clearing and settling payments and securities, and has involvement from a range of parties, including SGX, local banks, academics and technology providers.
In April 2018, the Infocomm Media Development Authority (IMDA), a statutory board of the Singapore government, launched a blockchain competition with government funds to promote blockchain innovation in Singapore – citing its potential to accelerate Singapore’s transformation into a digital economy. Even Singapore’s finance minister, Heng Sweet Keat, announced earlier this year that the Government of Singapore aims to promote blockchain across South East Asia.
According to ICO rating, an ICO research firm, in Q2 2018 there were 57 blockchain projects in Singapore which raised a total of US$574.8 million through ICOs. This compares to 14 blockchain projects raising US$47.6 million in Hong Kong.
With support from governments, a dynamic innovation landscape and a use case that’s already being proven, there is plenty to suggest that we are reaching the tipping point when it comes to blockchain and payments. And with the backdrop here in Singapore broadly supportive of blockchain innovation, we can expect more changes to come.