The Payments Problem: Blockchain for Crisis Relief Distribution

(shutterstock.com)

How do you get COVID-19 funds into the hands of people who desperately need relief — in a fast, accurate and secure way? This is the problem that governments across the globe are faced with, as shut down economies mean that many their country’s citizens and businesses, few of whom have a financial buffer of more than a few weeks, have no way to pay for necessities like rent, food and company expenses like employee salaries.

These payments are massive and widespread, posing a challenge to quick distribution across a spectrum of individuals, households and businesses. On March 18th, the United States committed to issuing two tranches totalling US $500 billion in direct payments to US citizens suffering the economic effects of the pandemic, with another proposed $50 billion in small business relief. In Canada, Prime Minister Trudeau announced its COVID-19 Economic Response Plan, which included CAD $27 billion in direct support to Canadian workers and businesses.

With governments around the world deploying similar relief programs to citizens and residents, existing registry and payment services are straining under the weight of this immense, unexpected burden. In most countries, federal fund distribution systems are a major source of bureaucratic employment, with large-scale manual processes and thousands of administrators, accountants and clerks.

“For citizens and businesses, transactions would be more efficient with near instantaneous settlement at potentially a fraction of the cost.”

PWC, ‘The Rise of Central Bank Digital Currencies’ (2019)

In a crisis, the manual processing of payment applications is a dangerous source of delays, high costs and errors, and a prime area that digital technologies can streamline and automate these functions to create a more optimized, shock-resilient system. As the COVID-19 pandemic is demonstrating, distribution timelines of days and weeks won’t cut it during future black swan events, and it’s time for a system upgrade.

Blockchain is a decentralized data storage technology in which ledgers containing information, secured by cryptography, can only be read and added to by its network of users, never altered. This creates an unbroken chain of data provenance where any additions to the verified database, or ledger, are instantly shared and accessible by authorized parties. Smart contracts are applications built on these ledgers that have terms agreed to in advance and are programmed to automatically execute when the contract parameters are met.

Compared to unwieldy, centralized data storage and transaction systems that are often manually administrated by thousands of human workers, blockchain is a major leap forward in both cybersecurity and business automation that has demonstrated large cost, labor hours and time savings across industries and applications. Tied to digitized identities and distributed through digital wallet apps, government-issued blockchain currencies are moving closer to real world utility.

As the technology has evolved over its 10-year history to become more scalable and capable of integrating with existing business systems, the world’s largest companies have started making big investments in a blockchain-based future. Composed of 60 major international banks and credit providers, with over 300 participating companies in total, the R3 consortium has developed the leading blockchain platform for financial transactions.

Project Jasper, a partnership between Payments Canada, the Bank of Canada and private enterprise that involved R3 and its Corda platform in its later stages, was launched in 2016 as a landmark exploration of how blockchain could be applied to optimize government settlements and payments, and research the challenges and benefits of a digital, central bank issued currency as a contingency in case it became a future necessity. Signs from other governments are suggesting that the novel coronavirus could potentially be a catalyst.

“Processing payments via national payment systems is often expensive and time-consuming. If fully adopted, blockchain can enable near real-time and accurate payments, thus reducing transaction processing costs”.

Deloitte, ‘Can Blockchain Accelerate Financial Inclusion Globally?’ (2018)

The US government may now follow Canada in researching and developing a central bank issued blockchain currency, with the Democratic Party’s March 22nd draft stimulus bill containing a proposal for a digital dollar that would help resolve issues with providing aid to unbanked citizens, running on a digital ledger managed by the Federal Reserve and redeemable as units of value at eligible financial institutions.

With China reportedly in the advanced stages of developing its own digital currency, blockchain appears to be key to future government payment processes. However, for the enormous undertaking of issuing COVID-19 relief payments to hundreds of millions of people, it’s not an immediate solution — it’s a long-term infrastructure that requires a collaborative approach from government, industry and the blockchain technology sector.

Systemic problems require systemic solutions, and with international agencies like the World Health Organization predicting more large-scale health crises to come, we can’t wait for the current emergency to pass and stability to return before we start preparing.

Right now, governments are in a mad scramble to get money in the hands of people and businesses who urgently need it, and the cracks in our current system are becoming painfully clear. Systemic technological change is expensive, challenging and comes with inevitable risks, but we’re now at a global tipping point where maintaining our old, fragile ways of operating are by far the greater hazard.

We can’t predict black swans, but we can prepare — and automating relief payments with digital technologies like blockchain will help us build a far more resilient future.


The Payments Problem: Blockchain for Crisis Relief Distribution was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.