Evaluating the ROI of Blockchain Technology

As businesses and financial institutions (FIs) look for the best return on their payments infrastructure investments, blockchain technology has become an increasingly diverse and promising area to explore.

Among the businesses surveyed that operate in 10 or more countries, nearly 69% said they use smart contracts that trigger payments without human intervention when pre-set conditions are met, while more than 31% said they use blockchain technology or cryptocurrencies in wealth management. These numbers drop for firms operating in fewer countries, and less than 25% of surveyed firms operating in just two countries use smart contracts for payments.

However, there is interest in expanded use, with 42% of all businesses surveyed saying they use smart contracts for payments, while another 13% said they would be interested in triggering payments with smart contracts.

At the same time, cryptocurrencies remain an area of ​​strong interest worldwide. In the US, 23% of consumers surveyed said they believe crypto is the future of money, compared to 59% in Latin America and 58% in Africa, where long-term hyperinflation is affecting confidence in local currencies. While recent volatility may dampen cryptocurrency enthusiasm, central bank digital currencies (CBDCs) and other blockchain-based payments appear to offer the promise of a more stable use case with the same cost and speed advantages as crypto. 90 percent of institutional investors surveyed said that the past three years have seen greater interest not only in cryptocurrencies, but also in CBDCs and corporate blockchains.

This month, PYMNTS Intelligence looks at the data businesses should consider when evaluating the potential return on investment (ROI) of blockchain technology and the trends that will shape the future of digital currencies.

Blockchain payments beyond crypto

Cryptocurrencies have yet to take a significant share of payments. While those who say they have owned crypto grew from 16% in 2021 to 23% in early 2022, more than half of crypto owners still see it primarily as a form of investment. Cryptocurrency use has shown the potential of blockchain payments, but in terms of speed and cost. The impact has been significant enough that 37% of consumers surveyed said they believe blockchain technology enables faster payments, and 68% of those who have used crypto shared this sentiment. In addition, 82% of CFOs and CFOs said that crypto payments settle faster than non-crypto payments, and 88% of merchants surveyed said they have experienced faster payments with crypto. While crypto may not make significant gains as a transactional currency in North America, interest is higher in other regions. Only 19% of small businesses surveyed in the US and 8% of those in Canada said they want to enable crypto payments in the near term, but this percentage rose to 30% in Brazil, Hong Kong, Singapore and the United Arab Emirates.

Many of the speed and reliability benefits associated with crypto extend to other blockchain payments, with smart contracts reducing the need for intermediaries and 90% of central banks surveyed looking at CBDC deployment. The majority of central banks in “advanced economies,” including the United States and Japan, said there could be a future in payments for stablecoins linked to and backed by fiat currency. Sixty percent of total respondents were much less impressed with cryptocurrencies, saying they have “trivial or no use” in domestic payments, and 40% gave the same forecast for crypto in cross-border payments. Some central banks considering CBDC are most interested in digital currency as a means to catalyze innovation, while others are looking to it to complement existing monetary systems.

The Growing Role of Blockchain Payments

However, the number of potential blockchain uses in all types of transactions can be unlimited. Some have even compared the rise of blockchain to the rise of the internet itself. Blockchain is expected to change everything from how transactions are carried out to how data of all kinds is stored, accessed and shared. It can, for example, change supply chain management, contract mediation and all forms of asset trading. In terms of payments, this means that blockchain is not only the source of new currencies, but also has a role to play in how currencies and assets of all kinds are traded.

It’s no surprise, then, that 73% of respondents to a Deloitte executive survey focused on the financial services industry said they are concerned about losing a competitive edge if their organizations don’t adopt blockchain and digital assets. 80 percent said they expect digital assets to be either very or somewhat important in their respective industries over the next two years, and 43% of finance industry respondents said digital assets play a very important role for their organizations in terms of new payment options. Respondents also showed a positive view of how far blockchain technology has come, with 81% overall saying the technology is broadly scalable and has achieved mainstream adoption. The question of investing in blockchain technology appears largely residing within the financial industry, with companies having to decide how and when to invest while weighing immediate costs against the risk of falling behind competitors.

For all PYMNTS crypto coverage, subscribe to the daily crypto newsletter.