In recent years, digital or online payments have seen a rapid increase in the frequency and value of transactions. The global digital payments market is expected to increase from $96.19 billion in 2022 to $111.11 billion in 2023. In fact, Statista reports that the value of transactions through digital payments will reach $9.46 trillion by the end of this year.
At the same time, we are seeing the continuous advancement of the Web3 movement. Web3 benefits like decentralized finance and affordable blockchain continue to generate curiosity and enthusiasm among web users. Going forward, Web3 can transform the way we do our credit card transactions and digital payments.
As a matter of fact, credit card giant, Visa, is preparing for the advent of Web3 by recruiting experienced software engineers. Similarly, Mastercard has announced its Web3 program for launching musical artists in the digital economy.
Essentially, Web3 succeeds at “democratizing” the internet by enabling users to create, store, and access digital assets (enabled by blockchain technology). Also referred to as Web 3.0, Web3 is the next evolution of the internet built using decentralized blockchain.
How does Web3 transform digital payments? Web3 enables the transfer of payments without any central intermediary system, which is the current norm. Besides, monetary transactions on Web3 can utilize digital assets like cryptocurrencies instead of solely government-backed paper currencies.
Here are four guiding principles that define the successful implementation of Web3-based digital payments:
Skeptics often question the real-world utility of Web3 by limiting it to cryptocurrency and NFT trading. Others foresee Web3 as the facilitator of “virtual” goods and services within the metaverse.
However, recent developments have enhanced the potential of Web3 in enabling digital payments. Recently, it was reported that JP Morgan Chase would open an innovation lab for developing blockchain-based data encryption and security products. Likewise, Mastercard has announced its partnership with Web3 payment protocols. This is designed to settle real-time payments in cryptocurrencies on all merchant outlets accepting online Mastercard payments.
Also known as decentralized applications, DApps are also emerging in the Web3 space. Web3 DApps are digital applications that run on decentralized peer-to-peer (P2P) blockchain networks. Beyond online payments, DApps have the potential to enable P2P lending, which is opening new borrowing opportunities. Among the popular examples, Web3-based social media platform Steemit enables monetization of the user’s content where users can receive digital payment for their posted content.
In summary, Web3 is set to transform the payments landscape in the coming years. 40% of consumers are willing to use cryptocurrencies to complete their payments.
Credit cards were hugely popular in the realm of Web 2.0. But what is the potential of credit cards in Web 3.0? According to Bruno Guez of Revelator, “existing Web2 financial tools such as credit cards can actually be bridges to usher new users into Web3.” He points out the advantage that Web2 users are already familiar with the use of credit cards. This can help in ushering these users easily into the Web3 domain.
We are also seeing the rise of Web3-ready credit cards like Rain that use the Ethereum chain for users to spend on digital assets without opening any bank account. In fact, in 2022, Mastercard announced the release of its first credit card backed by cryptocurrencies. Reuters reports that Mastercard is already partnering with cryptocurrency exchanges like Nexo, Binance, and Gemini.
Rival company American Express has also announced its first crypto rewards credit card in partnership with crypto company Abra. Similarly, in 2022, Stripe announced partnerships with crypto platforms like FTX and Blockchain.com to launch a complete crypto-based business suite of products.
With the advent of eCommerce retail and digital banking, the need for digital payment solutions will continue to grow in the future. As compared to traditional payment systems, digital payments in Web3 offer a range of benefits, including:
Designed for Web3, digital payment platforms can benefit both payment companies and consumers. Among the future trends, the use of stablecoin will provide online consumers with a more reliable mode of transacting with digital currencies. Similarly, micropayments can create new business models such as “pay as you go” content consumption and streaming.
Additionally, decentralized autonomous organizations (or DAOs) can automate payment processing for organizations without any intermediary.
However, the Web3-based payment system has its share of limitations. Robert Miller of Fuse talks about Web3 payments being “still in their early stages.” He points out that “Web3 payments may be prone to security threats and high transaction costs.”
These are some of the challenges of Web3-based digital payments that the industry must address to synchronize a smoother transition.
In summary, Web3 has the potential to transform digital payments and elevate the space to the next level. Thanks to decentralization, Web3 technology enables higher transparency, speed, and security for digital payments and credit card transactions.
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