When people think about blockchains, they often think about Bitcoin and cryptocurrency trading. But the technology could also change how money moves around the world.
SoFi Technologies (NASDAQ: SOFI) is betting on that opportunity. In September, the digital financial services company began using its own digital dollar to settle transactions across its Mastercard card program. This could open a new growth opportunity for SoFi beyond banking and lending.
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But investors should keep one thing in mind: Processing more transactions does not automatically mean making more money. SoFi Technologies still needs to prove that its blockchain business can generate meaningful profits.
SoFi wants to change how money moves
Consider what happens when you pay for something with a credit card. You may see the payment go through almost instantly, but the banks and other financial institutions involved still need to settle the money between themselves.
That process can take time.
A blockchain offers another way to move money. It allows participating institutions to transfer and record funds on a shared digital network, potentially allowing transactions to settle at any time of day.
SoFi Technologies wants to bring this technology into everyday payments. Its digital dollar, called SoFiUSD, is designed to maintain a value of $1, unlike Bitcoin, whose price can rise or fall sharply.
If the system works well, it could help move money more quickly and give businesses faster access to their funds.
Mastercard gives SoFi a head start
Building a new payment network is difficult. A company needs banks, merchants, and customers to adopt it before the network becomes useful.
SoFi Technologies does not have to start from scratch. Its partnership with Mastercard allows it to introduce blockchain settlement through an established global payments network. That gives the company a practical way to test whether the technology can improve an existing system.
The potential benefits of digital currency go beyond speed. Faster settlement could help businesses access their money sooner, while payments that operate around the clock could make moving money between institutions more convenient.
Having said that, the real financial benefit in the long run will depend on whether the new system reduces costs, improves capital use, or helps SoFi win additional business.
Read More: SoFi Just Made a Big Move Into Blockchain Payments. Here’s What Investors
