Tapping Into The Blockchain For The Evolution Of Faster Payments

Sending cross-border payments can be a costly, time-consuming affair for companies trying to do business on a global scale. However, businesses may be able to transact internationally in a faster and more efficient way based on recent developments in the blockchain industry.

For small and medium-sized businesses (SMBs), sending payments internationally can be an expensive venture, especially when considering the fees associated with international wires and remittances. With this in mind, a Redwood City, California-based company has developed blockchain solutions geared toward eliminating unnecessary and costly intermediaries, while dramatically reducing the amount of time it takes to make a cross-border payment.

PYMNTS recently spoke with Karen Hsu, head of growth for BlockCypher, a blockchain web services provider, to discuss how the company is focusing on making payments faster, while reducing fraud, and where the challenges and opportunities currently exist within the space.

Blocking And Tackling

Larger banks and financial institutions have shown more interest recently in private blockchains, Hsu said. The public blockchain, especially for financial institutions, poses governance system and standards issues and unknowns, which potentially opens the door for a host of potential security concerns. She added that these organizations have shown particular interest in learning from BlockCypher’s production use cases on the blockchain, as most of the web services offered on the public blockchain are also used on the private blockchains.

By providing a blockchain infrastructure, BlockCypher estimates that it can save startups more than 35 percent in development costs and help them get to market sooner.

“For large banks, that means well over $2.2 million–$2.3 million in savings because of the developers they wouldn’t have to hire, the developer operations, the architects, the managers, all of the resources they would have needed to start up a whole new blockchain initiative,” Hsu said.

While some businesses may want to use the blockchain, there are challenges that make it difficult to implement the technology, particularly in the financial services, health care and manufacturing industries. The issue typically revolves around the security of fundamental transactions and how they need to be protected, validated and authorized, Hsu said.

Making Payday Faster

For the companies that are able to use a blockchain solution like the one developed by BlockCypher, it may allow them to carve a considerable amount of time out of their payroll processes.

Typically, a company’s employees or contractors get paid between 11 and 15 days through a bank wire transaction, according to Hsu. But BlockCypher claims its solution can cut that transaction time down to near-instantaneous.

“That’s because of our ability to put that payment transaction information onto the blockchain and enable people to get that payment cleared almost immediately,” Hsu said. “And if not same day, then the next day.”

Cutting X-Border Costs

While it may be important for companies to be able to send quick payments nationally, sending cross-border payments on an international level in a timely and cost-effective manner might be even more vital.

By using the solution, one of BlockCypher’s partners, Bitwage, was able to reduce the costs of sending money globally to under 1 percent, according to Hsu.

Meanwhile, another partner, BlinkTrade, is also using the technology for its cross-border dealings in Argentina, Brazil and Venezuela, where there are high currency fluctuations, Hsu said. The solution helped BlinkTrade quickly confirm remittances and other payments for consumers who are exposed to the currency fluctuations.

“You have the costs of handling those payments, but when you have to wait 15 days to process transactions … people are losing a lot of money in a short amount of time,” she said, adding that payments usually process on the same day they are sent or the following day.

In addition to companies’ desire to make payments as fast as possible worldwide, they also want to guard against fraudulent transactions.

With this in mind, BlockCypher has created a predictive analytics–based algorithm, dubbed the Confidence Factor. The web service measures the likelihood of whether a transaction will be confirmed and gives it a score, which is generated for the bitcoin network and examines different criteria, including mining fees, the quality of outputs the transaction is trying to spend, signature type and transaction propagation.

Fighting Fraud

The service is also aimed at catching fraud, such as intentional double sends.

“The score takes into account aspects of the transactions on the network,” Hsu said. “This is important because, if a transaction is not connected to a number of peers and we take into account miner fees, then we can calculate whether or not this transaction is actually going to clear.” If that score is high — above 99 percent — then companies will get the green light to give credit for that transaction.

Alternatively, if the transaction score is less than 99 percent, then that may mean there are fraud issues, Hsu said. That’s when BlockCypher’s customers will freeze their account and begin investigating the situation.

Hsu said the second way to use the web service is through APIs the company developed through its research and working with the U.S. Department of Homeland Security. The government agency is interested in the money movement and patterns on the bitcoin network for multiple reasons, including ransomware attacks.

Earlier this year, the FBI reported that ransomware attacks caused companies and consumers to lose more than $1.6 million in 2015. BlockCypher’s analytics capabilities are intended to help companies and consumers to identify hackers.

“Ransomware hackers ask for payment in bitcoin, so being able to trace back and monitor when a ransomware hacker is going to attack is really important, and that’s one reason we’ve been working with Homeland Security,” Hsu said. “It’s also the reason why we’re working with a number of private institutions that want to protect themselves from ransomware.”

BlockCypher has partnered with visualization company Tableau to provide digital monitoring dashboards that display when ransomware attacks may occur, while also helping prepare companies for these attacks.

“We’ve also developed machine-learning algorithms to identify which entities, which addresses and also which types of transactions are likely [related to] money laundering, ransomware or gambling,” Hsu said.

Tapping Into The Untapped

Aside from the company’s fraud program, BlockCypher will be coming out with additional solutions soon.

“The solutions are based on the experiences we’ve had with customers,” Hsu said. “Because we know what use cases they are using our technology for, we can map that to the APIs that they use most frequently.” She added that BlockCypher tracks that information through its analytics.

While there is still plenty of unrealized potential in blockchain, Hsu said, there are plenty of opportunities that can still be explored in the payments world.

“I see entirely new markets starting up,” she said. “The opportunity that [hasn’t been discussed much] because we just don’t see it right now is the opportunity to go after the unbanked. There are millions and millions of people who just don’t have enough money to open a bank account. They only can do micropayments. But if we’re able to open up those markets and to aggregate and seize that opportunity, that’s where a lot can be done.”

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