Blockchain credit card trial brings new twist to retail payments industry

Rage Comment : Recently, Deloitte employees participated in an experiment based on the blockchain system developed by SETL, and successfully purchased coffee and cupcakes. They paid with contactless payment cards, which saved 80% of the payment fees. This is also very beneficial to "challenger banks", which can break the monopoly of traditional large banks and allow small banks to have a place. The more intense the competition, the more benefits it brings to consumers. After all, there is progress only when there is competition.

Translation: Nicole

Last Monday, 100 Deloitte employees lined up to buy coffee and cupcakes from a supplier.

While this has little to do with Deloitte itself, the Deloitte team did not use any payment methods when conducting the transaction - payment was made via contactless payment cards connected to a blockchain-based system.

The experiment, created and developed by UK blockchain startup SETL, shows how blockchain technology can be integrated into the retail shopping experience without changing consumers' payment habits.

In the experiment, customer funds deposited in Metro Bank customer accounts will be issued to personal accounts on the SETL blockchain and bound to user identities on Deloitte's blockchain ID system, which was officially launched earlier this month.

The experiment showed that payments could be processed in real time, with consumers and merchants’ account balances updated instantly. Anthony Culligan (SETL’s founder and product chief executive) said that if this technology is widely deployed, it could bring convenience to banks and merchant customers.

Anthony Culligan

Culligan told CoinDesk:

“Merchants are very sensitive to the various margins that the payment card industry extracts and until now they haven’t really been able to choose their payment processor, even though they already accept it, but now there is a way to offer merchants a third payment method for a very small fee.”

The experiment is one of the first mainstream examples of using blockchain technology in retail payment card transactions, and is another way to demonstrate the benefits of digital currencies if merchants widely adopt this payment method.

The system, which is expected to be operational in 2018, was created by UK retail bank Metro Bank and is being experimented with under the FCA’s “regulatory sandbox”.

Aimed at encouraging wider use of financial technology, the program allows financial technology companies to test new products and services in real-world settings, but under the supervision of regulators.

Merchants are the winners

While the experiment was a small affair in many ways, it was a great showcase for SETL’s proprietary blockchain technology.

Culligan said SETL’s system could eventually reduce payment processing fees for merchants by 80 percent by more efficiently connecting the various players in the value chain.

But the system could also be good for so-called challenger banks - small lenders trying to carve out a niche in a market that often struggles to compete because they rely on bigger rivals for contracted card settlement services.

Culligan explained that SETL and its partners need a network of participants to see the true benefits of its design.

Culligan said:

“The idea is to offer a technology that is not just good for one bank, but for many players, replacing the monopoly of the big incumbents and being significantly cheaper to use than the current payment networks.”

Integrated identity

Facilitating the collaboration between SETL and Metro Bank is just one of the initiatives Deloitte has taken in recent years to promote the use of blockchain technology.

David Myers, head of capital markets at Deloitte, explained that the SETL trial is just one of the ways blockchain identity services are being integrated into more financial systems.

Myers said:

“We see financial services taking the lead when it comes to digital identity, and you don’t have to go looking for answers to the AML and KYC related issues that banks have been facing for a long time.”

Deloitte developed the Secure ID project as a solution because many of its banking clients were facing significant cost and technical challenges due to the remediation procedures required by KYC rules, Myers said.

But even though banks and merchants are the primary beneficiaries of blockchain-based card payments, stakeholders argue that the reduced fees on card transactions should be passed on to consumers.

British consumers would welcome more competition in the banking sector, as big banks in prime locations such as RBS, Barclays and HSBC currently have the lowest customer satisfaction ratings.