Recently released World Payments Report for 2018 indicates a big increase in digital transactions globally while distributed ledger technologies (DLTs) failed to make its mark on overall global financial transactions.
The report was published on Tuesday, October 16, by consulting and technology services firm Capgemini and leading European bank BNP Paribas. The pair conducted a study involving executives and industry participants.
In its report, it evaluated the payments based on industry governance, market dynamics, demographics, enabling infrastructure, and other factors. It also looked at a DLT experiment conducted by De Nederlandsche Bank (DNB).
It concluded that DLT “in its current state fails to meet the very high demands of a financial market infrastructure.”
Challenges of Distributed Ledger Technologies
The authors noted that DLTs which include blockchain technology were not the mainstay of digital payments despite their revolutionary features. This they said is due to some limiting factors including a lack of interoperability, scalability issues and a lack of regulatory clarity. Other major challenges identified include security concerns and cost of implementing these DLT solutions.
The problem of Blockchain Interoperability
In the survey conducted for the report, 85.9 percent of respondents noted that lack of interoperability was the reason DLTs don’t currently meet the financial market demands. Different individual and group players in the financial sector are developing their own blockchain ecosystems and if they don’t interoperate limit the overall effectiveness and adoption of DLTs.
According to the authors, “Multiple DLT systems create a fragmented market with limited connectivity between solutions, which leads to inefficiencies and limited adoption.”
Blockchain Scalability Issues
Another major culprit identified is the inability for blockchain or DLT solutions to be scaled to meet the demand of real-life applications. 77.8 percent of participants in the study pointed to scalability issue as hindering DLTs.
The report explained that most of the innovations in this area were still at Proof-of-Concept (PoC) stages and were too often confined to research labs.
Being an emerging technology, governments are taking time to establish clear guidelines and policies towards blockchain technology. The cross-border nature of DLT solutions makes it more difficult to regulate. 83.1 percent of the study respondents say this lack of regulatory clarity negatively affects the adoption of DLTs for payments globally.
As Smartereum reported in August, PricewaterhouseCoopers (PwC) released results of its Global Blockchain Survey for 2018 which identified regulatory uncertainty as a prime limitation for blockchain adoption globally. Having interviewed 600 blockchain-savvy executives from 15 countries, PwC observed that a lack of trust, interoperability issues, and scaling problems were also some of the biggest barriers to blockchain adoption.