Blockchain is one of the most talked about innovations in FinTech, but unless you’re glued to the latest payment news, chances are you’ve never heard of it.
So, to get you up to speed, we’ve put together a simple guide to blockchain and how this burgeoning technology could have a big impact on the future of card payments.
What is Blockchain Technology?
Blockchain is a method of recording data to create a digital ledger of transactions, agreements, contracts, or anything else that needs to be recorded. This ledger of transactions or agreements is then distributed across hundreds or even thousands of computers around the world, giving everyone in the network access to an up-to-date version.
The data is recorded in blocks and is stored in a linear chain, hence the name blockchain. Each block of data draws on the previous block of data in the chain to ensure the data contained throughout the chain has not been tampered with at any stage.
How Does It Work?
The blockchain undergoes an encryption process known as ‘hashing’, which is carried out by lots of different computers. If all the computers agree on the answer, each block of data receives a digital signature. Once the ledger has been updated with the data block, it cannot be altered or tampered with, only added to. That makes it more difficult for hackers to attack, as they would have to gain access to every copy of the blockchain that exists in order to be successful.
If a document or transaction already stored on the blockchain is altered, a different digital signature is produced which alerts the network to the mismatch. This makes fraud, data breaches and innocent mistakes less likely to occur and easier to spot, which is vital to PCI DSS compliance.
How Can Blockchain Technology Improve Card Payment Security?
Transactions between two accounts at the same acquiring bank can be administered very easily, but getting the computers at two different banks to communicate securely and effectively is a complicated and expensive process.
This is where blockchain technology can help. By using a tailored version of blockchain, the whole process of bank-to-bank and merchant-to-bank communication can be sped up safely and securely. The result would be a lot less manual processing, enhanced data security and reduced costs to merchants.
What Are the Benefits for Consumers?
For the customer, the adoption of blockchain technology could lead to faster, cheaper card payment services. One of the biggest benefits would be the ease with which cross-border payments could be made. Historically, these have been costly and time consuming, with banks charging high service fees and exchange rates. In future, blockchain technology could make cross-border card payments as easy as sending an email or SMS.
Blockchain is something we’ll be keeping a close eye on as the technology develops and gains widespread adoption at banking and financial institutions. Give us a call if you’d like to learn more.