Blockchain is already taking a bite out of the fees traditional financial institutions extract from cross-border transactions by providing a workaround that avoids third parties.
The Hong Kong-based payments technology and processing company Octo3 hopes the model can remove even more layers from transactions, enabling merchants to accept new and emerging payment types with much less effort, overhead and costs.
"There are a lot of tech platforms out there, and commercial entities. It's very fragmented and siloed," said Tyrone Lynch, Octo3's chief executive. "You have many players, but no common language."
Octo3 is running a public token sale through Oct. 31 to finance its project, a cross-channel payment network called Hazza. A not-for-profit organization will operate Hazza out of Hong Kong, and the Hazza tokens will serve as vouchers to join the network.
The network, which requires a successful token sale to get off the ground, is designed to circumvent the barriers put up by new payment systems that operate in traditional environments. Distributed ledger companies such as Ripple Labs have gained steam by using the technology to cut correspondent banks out of cross-border payments, saving time and fees.
Other mobile and digital transaction apps can benefit from the same concept, according to Lynch.
"These new payment methods are generally not accepted at merchants or shops until the provider spends time knocking on doors to get them to accept," Lynch said. "The point of entry is high and it's hard for wallets to gain traction."
Hazza will use the token resources to build blockchain solutions, and the tokens will enable access to the system. Tokens can be purchased through cryptocurrencies such as bitcoin and ether. Tokens can also be purchased via U.S. dollars. While the Chinese government is putting pressure on virtual currency sales, Lynch said Octo3 is not marketing Hazza tokens in mainland China, though the new payment system would likely be available there once built. The company is taking legal and other professional advice as needed, Lynch said.
"We recognize this was an important step for the mainland Chinese market and we fully respect it," Lynch said in a followup email. "In fact, we welcome these kinds of regulatory developments a token sales and ICOs are a new business model, and there have been many sales emerging that clearly abuse the system and without any real projects."
Hazza's goal is to enable merchants to connect to a single network and access any payment system that's also plugged into Hazza. Hazza will be open to mobile wallet providers, banks and other financial companies. Application programming interfaces (APIs) will ease onboarding, and smart contracts will speed agreements between merchants and payment service providers.
"A merchant may only be able to take a couple of credit cards," Lynch said. "Once they plug into this API, that goes up dramatically."
There are a couple of challenges to the concept. The third-party payment providers are competitive, and the development of mobile wallet-driven commerce has already been fraught with turf wars over access to operating systems.
Octo3 contends the scale and ease of access will make Hazza attractive, particularly in a hypothetical case of a large payment company such as Alipay, which has been entering separate deals to broaden its reach outside of China. A decentralized network would in theory make these individual deals unnecessary, or at least less complex.
"It could be Alipay or any Chinese payment network," Lynch said. "UnionPay has spent the last 15 years trying to get accepted around the world and it's still not accepted in a lot of places."
Other challenges include managing scale and compliance, according to Tim Sloane, vice president of payments innovation at Mercator Advisory Group.
"Scale and massive enablement requires a tradeoff," Sloane said. "As the network scales it becomes harder to maintain a 'shared and accurate perspective' due to propagation delays throuugh the network. Many have said they have found a solution to this problem including Ethereum, yet have been unable to deploy those breakthrough algorithms."
Assuring bandwidth is an additional challenge, as is getting parties to cooperate within the payment system, according to Sloane.
"There must be alignment and accountability," Sloane said, adding there could be sovereign issues that cause differences in laws from one country to the next.