The future of next-generation payments on DLT
Payments is an area that’s continuously transforming to become ever more efficient, optimized and streamlined. In recent years, the reinvention of payments has been advancing along two parallel pathways. One involves the transformation of the existing payments networks to be more real-time, nimble and transparent. The other is the rapid development and growth of new technologies and concepts enabled by distributed ledger technology (DLT), such as cryptocurrencies, stablecoins and central bank digital currencies (CBDCs).
But now these two pathways are set to converge. And R3 – working in collaboration with partners such as the digital payments service provider Modulr – is helping to make this reality, by bridging the gap between legacy and DLT-enabled payments. But what does this involve – and what benefits will it bring? These questions and many more were tackled in a 101 Blockchains Think Tank Series webinar on The Future of Next Gen Payments on DLT, featuring Muneeb Shah, R3’s Head of Product Commercialization and Strategy – Payments, and Andrew Dellow, Director of Strategic Accounts at Modulr.
Benefits of DLT payments
Muneeb Shah began by highlighting how central banks’ growing focus on exploring the potential of new age digital currencies is redoubling the momentum behind the convergence of legacy and DLT payments. “In the future, DLT will be the underpinning technology that enables the transformation of payments to the new world,” he commented. “We’re already seeing existing players in the payments space starting to look at DLT and trying to understand how it can be used for CBDC issuance or digital currency issuance, or for connecting with crypto exchanges. This is just the start, and DLT will certainly play a very big role in this transformation.”
Modulr is supporting the journey by helping to automate and embed digital payments that are delivered as-a-service through application programming interfaces (APIs). “Our vision is to enable every software business to have payments embedded and become a payments company,” said Andrew Dellow. “We’re providing embedded banking right across a whole range of use cases, from travel to accounting to payroll and more. And the fact that these services are now accessible digitally means we can open up so many more use cases.”
Against this background, how and why will the whole payments landscape be brought together and underpinned by DLT? As Muneeb Shah explained, several production-ready networks have been built on DLT, including on R3’s Corda for sectors like trade finance, capital markets and real estate. While these networks carry out their core business processes on DLT, they still use existing payment rails for payments and settlement. This creates two issues: the need to work on multiple platforms for different parts of the same business process, and to reconcile the information across those platforms. The solution? Integrate payments onto the DLT platform.
“Currently, we’re establishing the connectivity between existing networks and DLT through API-based integration,” explained Muneeb Shah. “But in future phases, we’re also looking at enabling the DLT networks to settle in the payment methods of their choice – so they can settle either using existing payment rails like Modulr’s, or go to a CBDC issuer, stablecoin or crypto exchange to settle. We aim to provide that end-to-end integration as a bridge from new to existing.”
The discussion closed with some searching question from the audience, focused on topics such as banks’ readiness to participate in integrating existing and new age payments, and the challenges in transitioning from Web 2.0 payments to Web 3.0 payments
In this short blog we can only scratch the surface of the rich debate. To experience it in full, click here to watch the webinar.