Blockchain’s grown up—it's no longer just crypto for holding and trading, it's laying down the groundwork for next-gen stuff like PayFi. One of the latest and most innovative applications of blockchain technology is in PayFi. PayFi, which combines payments and decentralized finance (DeFi), aims to modernize how payments work using smart contracts, the blockchain, and crypto assets. In this article, we'll cover the basics of PayFi, its principles, and actual use cases for individual users and enterprises.

Blockchain technology's use case is no longer just limited to cryptocurrencies. Devs are now looking at other ways to leverage the technology, expand its use cases, and bring it closer to consumers, including the unbanked. One exciting application of blockchain technology is in PayFi, or payment finance.

Blockchain's involvement in finance is long overdue—according to Mordor Intelligence, the global financing market hit $2.85 trillion in 2024, and is expected to grow to $4.78 trillion by 2029. Mordor Intelligence added that the Asia Pacific region remains the fastest-growing market. However, recent experiences suggest problems in finance, specifically cross-border payments.

While there's an increasing digitalization in this space, problems persist—dragging payments, high FX fees, and hidden charges. PayFi projects enter the picture that aim to modernize online payments. These projects leverage the blockchain, smart contracts, and crypto assets, and offer an alternative to legacy payment systems offered by banks, SWIFT, or even Western Union.

Getting the lowdown on PayFi — and how it's flipping the script on online payments

PayFi, or Payment Finance, was popularized by Solana Foundation President Lily Liu, in response to the notable inefficiencies in traditional online payments. For Liu, a better payment system is possible by integrating stablecoins and tokenised real-world assets (RWAs), with DeFi using legacy payment rails. In campaigning for PayFi, Liu also pointed to Solana's scalable infrastructure as the natural home of PayFi projects.

PayFi is rooted in the concept of 'Time Value of Money' (TVM), which means that every dollar today is worth more than its value in the future. Simply, your $1 today is more valuable than a $1 next year. This principle is correct because the money available now has the potential to generate better financial results, whereas if it remains idle, it gradually loses value due to inflation. In short, there's always an opportunity cost when payment delays or postponing the receipt of money.

According to experts, it's exactly what's happening in the current financial system, where big banks link huge sums in the 'nostro/vostro accounts. However, locking up huge sums of funds and enabling other institutions to advance the cash and cover it late with fees is an impractical way to manage delays—it doesn't solve the underlying issue, and money remains idle, which could be more productive.

Solana's Liu argues that PayFi is built to address the time value of money. She added that on-chain finance can unlock innovative financial products and experiences that aren't possible with traditional finance.

What's in the typical PayFi stack?

PayFi projects aim to simplify financial transactions by leveraging a six-layer approach. In a typical project, you'll find a blockchain layer, a currency layer, a custody layer, a compliance layer, a financing layer, and the application layer.

Many PayFi projects run on the Solana chain and Stellar for its faster throughput, transparency, and lower transaction costs. There are also a few new projects that are currently in presale that run on the Ethereum chain. Another crucial component of any PayFi stack is its compliance layer, which integrates regulatory checks, including AML and KYC, for the protocol.

What are the benefits of PayFi for individual consumers, business owners?

Supporters of PayFi projects list plenty of benefits for both individual users and enterprises. At its core, these projects aim to move money more smartly and efficiently. When money moves in real-time and is used accordingly, it's no longer at the mercy of inflation. In addition, individuals don't miss out on potential investment opportunities. If properly unlocked, PayFi offers plenty of benefits, not just for individual users but for businesses, too.

Here are the benefits of PayFi for individual consumers:

1. Faster transactions. With PayFi apps and platforms, users enjoy same-day processing, or even near real-time settlements, even across borders.
2. Lower fees. PayFi can work even without third-party help, cutting transaction and other associated fees.
3. 24/7 availability. Users don't need to wait in line for the banks to open to initiate a conversation. PayFi apps and platforms are always available, and they're accessible across devices too.
4. Transparent transactions. PayFi projects leverage blockchain technology, offering users clear and tamper-proof records.
5. User control. Unlike in traditional banks, PayFi gives its users control of their digital wallets.
6. Financial inclusion. PayFi platforms also benefit the 'unbanked', or those without access to traditional bank accounts. Interested users only need their smartphones and access to the internet to use the service.

PayFi also works wonders for business owners. Here are ways this new innovation in the blockchain can benefit your business:

1. Global reach. By integrating PayFi as 'a new way to pay', you reach more potential customers and users with minimal setup, but faster and cheaper transactions.
2. Lower operational costs. It's cheaper when using a PayFi platform since you're no longer tied to legacy payment processors, traditional banking infrastructure, and higher international wires. Also, there are fewer chargebacks, and fraud can be avoided thanks to blockchain's 'immutability'.
3. Automate procedures through smart contracts. With smart contracts, it's easier to automate several tasks, including the creation of invoices, the automation of payroll, scheduling of payments with built-in rules. Also, using these smart contracts allows business users to keep track of data and generate insights that can help in improving business operations.
4. Instant settlement. Business owners can improve their cash flow and make better investment decisions with faster transactions.

By unlocking liquidity and streamlining payment flow, users can enjoy plenty of benefits with PayFi. So, it isn't surprising to know that there's a growing number of projects in the crypto space that are passed as 'PayFi' projects. PayFi's benefits can also extend to the insurance market, remittances, and consumer finance services.

Owen

I write about Bitcoin and cryptos, the latest news on AI and tech, and follow the latest trends in online gambling, including provably fair games. Educator by profession, with a passion for writing.