Research Report: Blockhain Technology Already Disrupting the $100 Trillion Global Payments Industry

  • Blockchain technology and more innovative financial products have already begun to disrupt the traditional global payments industry. 
  • Billions of dollars have been invested into blockchain-related projects to transform the existing payments infrastructure.

Rohit Kulkarni, a Forbes contributor and former financial analyst at Citigroup, recently wrote that blockchain technology has already started “the wholesale disruption of the payments industry.” Kulkarni, who analyzes the “intersection” between venture capital, the initial public offering (IPO) market, and emerging financial technology, argued that “the dominance” of traditional financial institutions now looks “incredibly shaky.”

According to Kulkarni’s research, $140 billion has been invested in developing more advance mobile networks and improving distributed ledger technology (DLT). He predicts: 

fears about customer data and privacy and regulatory changes may impact the industry in unprecedented ways.

SharesPost Research

"Fierce Competition"

Kulkami then mentions what he claims are “five key reasons” why nascent fintech such as blockchain technology will “disrupt” the $5 trillion per day foreign exchange market. His research firm’s (SharesPost) first reason as to why new financial technology will disrupt traditional payment and banking systems is that the $100 trillion global payments industry is now facing "fierce competition" from small and medium-sized companies (SMEs).

According to SharesPost Research, the main areas of competition in the $100+ trillion market include cross-border transactions, peer-to-peer services (P2P), retail, and e-commerce. Kulkami writes:

Blockchain and smart contracts will redefine the relationship between customers, suppliers, and vendors.

He then goes on to the second reason why fintech has already begun the “wholesale disruption” of the payments industry by noting that $40 billion on “1,800 deals” was invested in 2017 to improve payments technology.

Kulkami also pointed out that during the first half of 2018, there were 800 fintech investments and $2 billion was reportedly invested to improve the operations of only four tech companies: Robinhood, Credit Karma (an American consumer reporting agency), OneConnect (a Shanghai-based financial technology solutions provider), and Armor Payments (recently acquired by Payoneer).

Going on to mention how giant venture capital firms such as Y Combinator, the Digital Currency Group, and Sequoia Capital have invested the most in blockchain and related financial technology, Kulkami implies these investments will lead to the development of legitimate products.

"One-Click" Payment Systems

The third reason why new payments technology is disruptive is that consumer behavior is changing. The researchers note that easy-to-use “one-click” payment systems such as WeChat, Alipay, have drastically improved the user experience.

The fourth reason why emerging blockchain-based payment systems are beginning to replace the outdated legacy systems is that they “can bypass financial institutions altogether and allow for direct payments between between parties."

The fifth main reason for a “revolution” in payment systems is rules and regulations related to customer data and consumer protection are changing as traditional financial institutions can no longer “monopolize” their clients’ data. New regulations and requirements introduced in Europe (European Union PSD2) require that banks share their customers’ data (with permission); this allows the merchants or processing companies to directly access customer account information, thereby making payments faster and more efficient. 

Facebook and Amazon Stock Hit New Highs as Stock Market Outperforms Economy

The price of Facebook (NASDAQ: FB) and Amazon (NASDAQ: AMZN) stock hit a new all-time high amid the coronavirus pandemic, as the stock market has been outperforming the economy.

According to available data, Facebook stock is now trading above $230 marking a new all-time high for the social media giant. Its positive performance comes shortly after it launched Facebook Shops, a platform that makes it easier for small businesses to sell to its billions of users amid the coronavirus crisis.

Speaking to CNBC Todd Gordon, managing director at Ascent Wealth Partners, said FB stock has been having a “very impressive” performance, noting that Facebook’s move up is “pretty spectacular.”

FB stock chartSource: Google

Facebook Shops gives the social media giant a new source of revenue, at a time in which advertisers are spending less because of the crisis. It comes as the deadline to launch the Libra cryptocurrency project approaches.

Amazon has been managing to outperform Facebook, however, as the e-commerce giant recently hit a new all-time high close to the $2,500 mark. AMZN stock dipped shortly after hitting it but has since recovered, and ahead of the opening bell is at $2,451.

The e-commerce giant’s performance comes after it reported gains in the first quarter of the year amid the coronavirus outbreak, as demand went up. It further announced it will be using all of its second-quarter earnings, of around $4 billion, in response to the crisis.

Amazon Stock price chartSource: Google

Stock Market Outperforms Economy

Other blue-chip stocks have been performing rather well, despite the toll the pandemic has taken on the global economy. According to Yahoo Finance, data from April included dismal jobs numbers and poor retail numbers, which led economists to lower their economic growth forecasts.

This month Goldman Sachs cut its GDP forecasts and warned the unemployment rate in the United States will reach 25%, while Credit Suisse economists warned a “longer growth slump will outlast fiscal relief.”

Economists from Bank of America said that the recession will be “unlike anything we have seen in modern history,” after claiming GDP in the second quarter of the year would fall at a 40% rate. Large firms in the S&P 500 index have, however, posted better results than expected.

Credit Suisse’s Jonathan Golub was quoted as saying:

  • Although aggregate earnings are beating estimates by +2.6%, ex-Financials, earnings are surpassing expectations by +7.1%, with 65% of companies exceeding their lowered projections.

These better than-expected-results help, according to some analysts, explain the rise in the stock markets.

Featured image by Markus Spiske on Unsplash