As global payments continue to become faster and more cost-effective, it will be increasingly challenging for banks to distinguish their offerings for end clients. Soon, outdated practices such as obscure cut-off times and non-transparent foreign exchange rates will be a thing of the past. In the future, the victors will be those banks capable of developing intelligent payments solutions that cater to clients' broader business needs. This entails devising innovative approaches for automation, new business models, predictability, transparency, and risk management. Achieving this feat requires embracing cutting-edge solutions based on distributed ledger technology (DLT) and tokenization.

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The banks that emerge as tomorrow's leaders will be those that actively experiment with and engage in real business projects leveraging programmable payments on DLT today. Well-established banks, often encumbered by old legacy systems, may struggle to adapt if they do not take action now. In contrast, smaller and more agile players that can swiftly harness the full potential of this technology may emerge as the winners in the upcoming race.

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I. Introduction
 

Global payments are evolving rapidly, becoming faster and more efficient. This progress is evident within both existing infrastructures, with initiatives such as SWIFT GPI, and alternative payment infrastructures, such as private networks like Thunes and Rapyd catering to retail payments. Additionally, global banks are offering proprietary "one bank" solutions, enabling real-time global payments within their group structures. These solutions have significantly enhanced the speed and efficiency of global payments. However, numerous inefficiencies persist.
 

By relying on traditional infrastructure, these solutions necessitate intermediaries, reconciliation, cut-off times, and lack a streamlined method for transferring value. New private networks often depend on prefunding, making them capital inefficient, while SWIFT gpi remains a messaging service only. The global banks' "one bank" platforms can move value within the group but face challenges in markets without access, and clients typically prefer not to be dependent on a single supplier.
 

The most significant hurdle for legacy solutions is their inability to address clients' growing demands for payment automation, new business models, efficiency, and risk management. The differentiating factor in the future will not be the speed or cost of the payment, but rather the ability to create intelligent payments that adapts to clients' broader business needs. Legacy infrastructure will fall short in meeting these demands. Banks must adopt distributed ledger technology (DLT) solutions today to provide the innovative solutions of tomorrow.

II. Distributed Ledger technology (DLT) and Programmable payments

 

The advent of blockchain technology and cryptocurrencies has facilitated the development of programmable payments, which holds the potential to revolutionize the financial industry by eliminating intermediaries, reducing transaction costs, and enabling real-time settlement.

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Central Bank Digital Currencies (CBDCs) are emerging across various jurisdictions; however, they are complex to implement, typically restricted to a single jurisdiction and currency, and will require considerable time before reaching a state where companies can engage in programmable cross-border trade using CBDCs. Today's cryptocurrencies and stablecoins offer alternative solutions to CBDCs, but their adoption may be hindered by the necessity for companies to transition from traditional banking to crypto wallets.
 

Moreover, significant credit risks are associated with using cryptocurrencies, as evidenced by high-profile collapses of crypto projects. This has raised concerns regarding the stability and reliability of cryptocurrencies as a medium of exchange.

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Despite these challenges, the potential benefits of programmable payments are substantial, and the financial industry is actively exploring the application of this technology to transform how financial transactions are conducted.

 

III. Programmable Payments Solutions

 

Cryptographic tokens and the development of decentralized applications that operate autonomously on peer-to-peer networks pave the way for innovative payment solutions. Smart contracts enable the introduction of programmable payments that adheres to pre-defined rules based on various conditions or external data, all automated. These smart contracts can be employed to execute a wide range of use cases for clients. Some of the most prominent include:

 

• New business models
  Programmable payments can facilitate bespoke solutions for clients, allowing them to pay only when using a product or pay additional pre-defined fees to reward high quality or other agreed-upon KPIs. This creates "win-win solutions" by ensuring clients' efficient use of a product and enabling suppliers to charge more if the product meets quality targets. Applicable to both physical goods and services, programmable payments can enable pay-per-use models, such as charging for a truck based on miles driven or for fuel savings achieved relative to miles travelled. These payment models offer more flexible and tailored pricing structures, benefiting both customers and suppliers.

 

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