The Shifting Payment Landscape: Rising Demand for Programmable Payments
- All, Insights
Automation is now at the peak of popularity, with every business process using it to some degree. For example, we can see a high level of automation in customer support, task management, goods delivery, reporting, and more.
Monetary transactions haven’t been exempt from automation either. Automatic payment processing now allows for instant payments, the collection of recurring charges, and the execution of P2P transfers, both within the same country and overseas. But there is something more than automatic payment processing—automatic payment initialization or even automatic currency usage. These concepts refer to programmable payments and programmable money.
This article will delve deeper into the essence of programmable payments and explain how they transform existing business operations.
Programmable money and programmable payments: how they relate and differ
Programmable payments
Programmable payments are payments that occur when certain predefined conditions are met. There are many conditions for executing automatic payments. Based on these conditions, different types of programmable payments can be made, for example:- Time-based payments – subscriptions or scheduled payrolls
- Event-based payments – payments made after delivery confirmation or when specific parties sign a contract
- Role-based payments – payments that can be executed only by specific roles, for example, administrators or users
- Location-based payments – automated payments processed in particular countries or regions
- Compliance-based payments – payments that automatically enforce KYC/AML procedures when initiated
Programmable money
Programmable money is digital currencies used for specific purposes under predefined rules. The rules behind programmable money usage vary depending on the purpose, time, and location of money usage. These rules drive the variety of programmable digital currency use cases:- Inflation control – programmable money can automatically adjust its supply based on predefined inflation targets.
- Interest rates – it is possible to adjust interest rates based on economic indicators using programmable money
- Spending on specific purposes – money can be programmed to be spent specifically on education and healthcare
- Targeting specific recipients – money can be allocated for specific recipients with no possibility of sending it to diverse payees
- Spending within a specific period – money can have an expiry date, after which it becomes invalid
- Transaction tracking – programmable digital currency may have a built-in mechanism for tracking the money flow to prevent fraud
Programmable payments vs. programmable money
Below, we provide a table that clearly illustrates the difference between programmable payments and programmable money.
Technologies empowering programmable payments
Programmable payments rely on various technologies that enable automated payment processing. Here are the main ones:
Blockchain
Blockchain is a special database management system that allows you to store information in many interconnected blocks. Blockchain doesn’t use intermediaries for transaction processing. Also, a blockchain payment transaction cannot be changed. This is because changing one block requires changing all subsequent blocks in the chain, which is nearly impossible to implement.
Blockchain enables programmable payments through smart contracts.
Smart contracts are software programs with built-in logic about what should and should not happen when certain conditions occur.
Developers can program any conditions for your blockchain payment processing. They may implement blockchain payments based on a single condition or multiple conditions.
For example, you may specify that the payment should be sent when the parcel is delivered to the warehouse. Or you may specify that a payment should be sent if the parcel arrives within 2 days at post office #10 in New York and the recipient confirms that the product works properly.
Cloud
Today, the vast majority of payment operations happen in the cloud. Programmable payments are no exception.
Executing programmable payments involves a complex ecosystem of distributed servers. Cloud providers provision such servers on demand and ensure the speed and security of monetary transactions.
Cloud providers, in addition to storage space, open ample opportunities for programmable payment development. For example, AWS, Google Cloud, and Microsoft Azure offer narrow-focused tools to ensure transaction traceability and resistance to cyber attacks and fraud. Another benefit of cloud technologies and distributed payment processing is the high transaction speed, no matter how far the payer and payee are located.
AI
Artificial intelligence (AI) and machine learning (ML) take payment automation to new levels and streamline programmable payments. Today, AI is actively used to screen the payer and recipient to prevent fraud, but its applications extend beyond this.
AI significantly enhances the mechanism for automatic payment. With AI, programmable payments go beyond simple if-then rules and become flexible and intelligent systems that assess all associated conditions and make balanced and unbiased decisions.
For example, while simple automation may fail to process a payment due to a typo in the recipient’s name, AI can analyze the data, authenticate the recipient, and process the transaction, thereby preserving the customer experience.
On the other hand, AI is more discerning about malicious actions than conventional automation. For example, AI can identify subtle patterns indicative of fraud that traditional systems might miss.
How do programmable payments work?
Programmable payments work based on predefined rules and logic implemented by developers. Thanks to programmable payments, you can enable payment process automation and ensure that a transaction will be executed once the specific conditions are met.
Here is what is going behind the scenes during the blockchain payment processing:
How do programmable payments work?
- The transaction is triggered by a specific event. This event could be the delivery of goods, arrival of a specific date, signing of a contract by certain people, or any other.
- The payment conditions are collected. A special algorithm gathers data associated with a blockchain payment transaction. This data could be delivery confirmation, service completion reports, user inputs, etc.
- The payment conditions are inspected. The blockchain smart contract checks whether the collected data meets the predefined conditions.
- The smart contract is activated. If the transaction conditions are verified, the smart contract will launch the transactions. If the conditions are not verified, the smart contract does not launch the transactions. It may recheck the conditions after some time and proceed with the transaction if these conditions are met.
- The smart contract initiates money transfering. Initially, funds are locked in a designated account of a smart contract. Once the transaction is approved, the smart contract creates a command to transfer the money from the payer’s account to the recipient’s account.
- The transaction is broadcasted and validated. The consensus mechanism of the blockchain validates the broadcasted transaction. This means verifying transaction compliance with the smart contract’s logic.
- A new block is added to the blockchain. Once the transaction is validated, a new block in the blockchain is created. This block contains information about the transaction and ensures transaction immutability.
- The money is transferred. The funds are credited from the payer’s account and debited to the payee’s account. Both parties receive the notification about the transaction execution.
How programmable payments transform existing payment operations
Programmable payments completely change the essence of monetary transactions, making them highly technological and totally independent of human beings. Here are the main transformational benefits that businesses and users receive from blockchain payments:
- Payment automation. Let’s emphasize it again. Programmable payments are executed by software programs or smart contracts. These programs cannot be persuaded or forced to do anything. The transaction is started only when the programmed conditions are met. With payment automation, you have no room for human error.
- Transparent transactions. Blockchain payments execute the transaction on an immutable ledger with no intermediaries. This allows all participants of the transaction to easily track its status. Additionally, the immutable nature of a distributed registry makes it impossible to change or cancel a transaction.
- Streamlined operations. Payments automation makes transactions faster and easier. You don’t have to check payment details, verify users, or review transaction terms. Payment is carried out according to clearly defined rules. Also, if these rules are not met, the smart contract rechecks them after some time and tries to initialize the payment again.
- Dynamic pricing. Programmable payments often include built-in algorithms that quickly calculate costs based on service or product usage. This allows businesses to adopt pay-per-use models easily. These models are crucial for subscription services, utility payments, cloud providers, and SaaS platforms.
- Cost-efficiency. Blockchain payments significantly reduce transaction costs by eliminating intermediaries from payment processing. This benefits businesses handling large transactions and micropayments. Partnering with a reliable payment service provider ensures reasonable pricing regardless of transaction amount or frequency.
Empower your business with programmable payments using the DCM payment automation platform
Programmable payments are software programs that are executed automatically when predefined conditions are met. To develop programmable payments, developer expertise, blockchain knowledge, and cybersecurity experience are needed.
However, as a business, you don’t need to worry about these things. To enable automatic payments, you just need to select a payment service provider that provides a payment automation platform and can help you use it as a part of your IT ecosystem.
At DCM, we’ve been helping banks, e-commerce businesses, and service providers run digital transactions since 2016. Programmable payments are one of the many options that we implement for our clients. Using AI, tokenization, and blockchain, we ensure that these payments are fast and secure and that they fit our clients’ budgets.
Do you want to start using programmable payments and benefit from the convenience of programmed transactions? Contact us, and we will help you to implement this swiftly.
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