It's common to hear that blockchain can cut steps — and thus, costs — from processing international payments. A startup contends that concept can also work for small, routine, domestic transactions.
MakeCents is starting tests of a decentralized payment system with a mobile wallet and a merchant payment gateway with a focus on the micromerchant market that's the sweet spot for mobile point of sale providers.
The New York-based MakeCents, which will shortly test its system with the New England grocery chain Seabra Foods, says that its decentralized network can support fees of 0.5% to 1% per transaction but that fee structure will depend on the agreements it is able to execute with counterparties and will vary based on those agreements.
Even at the high end, that would be less than the typical fee for fintech-driven point of sale systems such as Stripe, Square and LevelUp, which usually charge just below 3% per transaction, plus an extra fee of a few cents.
"A merchant can take up to six or seven steps to complete a payment with current systems," said Amos Zhang, a MakesCents co-founder, adding that the company is also approaching quick-serve restaurants with its platform. "There's merchant acquirers, salespeople, the payment gateway, the networks, the banks, an e-commerce company, merchant vendors, etc. What happens is the fees get higher and the processing and settlement time is very long."
International payments had a lot of the same problems, making transactions cost-prohibitive for online communities hoping to sell to international consumers. To improve cross-border payment processing, companies such as Ripple have used distributed ledgers or blockchain technology to eliminate currency exchanges and other third parties.
For domestic payments, MakeCents is attempting to shorten transactions using some of the same concepts. For MakeCents' target client base, there's no international currency conversion or need for correspondent banks, but there are still too many steps to complete transactions, according to Zhang.
MakeCents uses a distributed blockchain platform to digitize and decentralize fiat currency. For existing stakeholders, the incentives to cede some control in favor of a blockchain are lower costs, faster transactions and greater volume, Zhang said.
"Blockchain is a natural fit to remove these individual steps from the process," Zhang said.
The company has developed technology that powers three layers of a transaction — validation, exchange and commerce.
Validation is handled by a MakeCents network of P2P nodes that power and secure information in a "trusted execution environment." The exchange is a decentralized payment and clearing system that moves funds in and out of the MakeCents network, providing a way for merchants, financial institutions and other liquidity providers to connect directly. The commerce layer is a public chain that powers larger-volume transactions and could also include parties to exchange marketing and other content.
Blockchain has become a favored method for a variety of retail technologies as merchants, acquirers and other payment companies try to shorten transaction times and supply chains as margins for electronic payment processing narrow. Investments are growing quickly, particularly in the U.S.
Everything from aviation payments to social-driven commerce is getting the blockchain treatment, and incumbents such as Mastercard are trying to patent blockchain-powered navigation and business to business payment processes.
"The big picture here is another attempt to disintermediate the current payment transaction chain," said Raymond Pucci, an associate director at Mercator. "But now with blockchain on the scene it's not a surprise to hear about MakeCents. They have assembled an impressive team for its go-to-market strategy and a small, regional grocer will be a good beta for some real-world testing. The legacy players will be watching with interest as they will not sit idly by as their pricing models will be threatened. The real test will be to bring a system like this up to scale."