Distributed Ledger Technology (DLT) Fails to Meet Demands of the Current Financial Market

Although digital payments have seen a massive boom, driven mostly by developing markets the innovation landscape in payments is uncertain as BigTech entrants make their presence felt, and incumbents face technical and regulatory complexity in the development of new collaborative payments ecosystems between themselves and FinTechs.

World Payments Report 2018 finds that it will take more than bank-led initiatives to grow the new payments landscape. The broader financial services community – including public-sector organizations, regulators and third parties – must determine their new roles and work together with large payment users to ensure a smooth, balanced, and robust payments ecosystem development.

The study made use of an online poll which questioned industry employees on numerous issues, as well as interviews with industry executives. However, it notes that although there is a substantial market appetite for means of digital payment – most notably driven by developing markets – and that non-cash transactions are seeing tremendous growth, there are still substantial operational and regulatory hurdles to overcome. More specifically, the report goes on to outline some challenges it deems that distributed ledger technology will face before the technology can fully take the spotlight.

Of all the participants in the poll, 85.9% reportedly cited lack of interoperability, 83.1 percent lack of regulatory clarity, and 77.8% of the scalability issue, as factors limiting adoption. Over 60% of respondents highlighted such problems as security, cost of implementation, and time required to add a block to the transaction.

The report also stated that DLT innovation and projects were often confined to research labs or to the proof-of-concept (PoC) stage. A lack of interoperability between DLT and banking systems purportedly stymies the implementation of scalable solutions.

The murky regulatory conditions cited in the report stem from the lack of clear legal frameworks in many nations, creating a legal risk that dissuades actors from adopting distributed ledger technology.

The report also recounts a three-year distributed ledger technology experiment by De Nederlandsche Bank (DNB), which ultimately culminated in DNB noting that distributed ledger technology, in its current state,

”fails to meet the very high demands of a financial market infrastructure”.

DNB, however, further states that DLT could replace some market infrastructures, including interbank settlements and cross-currency trades.

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