Peer to peer (P2P) transactions essentially allow money to flow directly from user to user, bypassing traditional banking channels, making it a truly disruptive form of FinTech.
Enabling anyone to purchase, receive and pay for products and services with another party directly, P2P allows people to have better control over their transactions, gain higher transparency, and generally offers a more efficient system in which to send and receive money.
The traditional financial sector is already keenly aware of the fact that blockchain technology possesses boundless opportunities to fundamentally alter how consumers will interact with both businesses and each other, but can peer to peer transactions truly disrupt the traditional finance?
Cutting out the middleman – the heart of DeFi
Both the promise and potential of DeFi is far-reaching, even though it’s still in the infancy of its capabilities. It has the potential to be a major disruptive force, and establishing it may provide several important features and benefits that could be leveraged for use in the P2P payments industry.
As promising as this technology is, it remains to be seen if it can ever overtake traditional financial services offered by banks, with people relying on self-custody solutions and handling payments directly with each other.
Reluctance to overhaul current frameworks, cost and uncertainty whether integrating into existing systems and processes will be successful, will be some of the biggest challenges.
There are many initiatives underway that continue to be developed and enhanced further by both start-ups and established companies. Further proof-of-concept and small-scale executions will take place in the near future to set the stage for wider-scale implementation globally.
Peer to Peer in a Blockchain World
While P2P solutions Venmo and SquareSQ were started over a decade ago, the offering has increased in popularity recently. A reflection of the Covid-19 pandemic which forced people to move into digital banking solutions, the expansion is seen in all sectors of financial services, from e-commerce to capital management, building on a trend that began prior to the epidemic.
Beyond Web2 solutions, blockchain technology can further advance peer to peer transactions, effectively removing the intermediary almost entirely.
Fiat24, a Swiss FinTech offering cash accounts on the blockchain, offers a DApp which supports peer to peer transactions. With transactions powered by smart contracts, real-time and hassle-free payments can be made without any delays, 7 days a week, without any of the downtime experienced in traditional banking.
As Co-founder Yang Lan says “we are in a very exciting time right now, with cryptocurrency and DeFi providing entirely new financial plumbing that could replace many aspects of what we have in place now. Looking back at the emergence of neobanks during the past few years, the fully “online-only banks” were seen as a significant threat to the retail banking industry. This has parallels with the current narrative of DeFi rebuilding our financial ecosystems. People do want to experience the control and freedom that comes with being responsible and truly owning their digital assets, even able to carry out transactions directly on the blockchain through smart contracts, without an intermediary. That is at the heart of our offer.”
Looking ahead Peer-to-peer models have not yet become a market staple, despite being used in various sectors, such as borrowing and lending. As Mark Cuban says, DeFi won’t “automatically end banking” because “banks aren’t stupid,” but he predicts DeFi applications will still disrupt the traditional space. “Like [how] fintech picked off features that opened doors to apps that garnered millions of customers, I think DeFi will evolve the same way,” he said.
In the meantime, it is worth looking at the innovators in the space and to be an early adopter, testing out new tech which will surely change the face of finance entirely.