The growth of international trade and global mobility has fueled the demand for efficient cross-border payments solutions. Legacy systems are often slow and expensive, with multiple middlemen and complicated procedures.
With its decentralised and secure nature, blockchain technology offers a compelling alternative. Furthermore, as the cross-border payment market is expected to reach $290 trillion by 2030, blockchain and digital payments are emerging as strong contenders to streamline international transactions.
Introduction to Blockchain in Cross-Border Payments
While blockchains are not designed exclusively for payments, they offer a powerful foundation for streamlining cross-border transactions. Unlike traditional banking systems restricted by national borders, blockchains are global by nature. Also, in a blockchain payment system, payers and payees use a shared network with common data formats. This enables direct transactions to and from anywhere.
Traditional card and banking networks are controlled by individual institutions. Blockchains distribute this authority. Anyone with an internet connection can participate in these permissionless networks. Moreover, this removes the control of centralised systems, making them more accessible for both merchants and customers.
Benefit 1: Speed
Traditional reliance on central authorities can slow down transaction processing. For example, depositing a check on a Friday might not show up in the recipient’s account until Monday because of limited bank hours.
Blockchain technology operates 24/7 and enables much faster settlement times. On some blockchain networks, transactions can be finalised in minutes. This efficiency is especially beneficial for cross-border payments.
Benefit 2: Cost Savings
A report by Jupiter Research shows that by 2030, banks could save over $27 billion in cross-border settlements. This efficiency comes from blockchain eliminating the need for intermediaries. Also, consumers often pay banks or notaries for verification, but blockchain removes this dependency and its fees.
Benefit 3: Security
Traditional and centralised databases use a single point of access, making them vulnerable to cyberattacks. Blockchain technology offers a stronger alternative. It distributes encrypted data across a network of interconnected computers.
This system, called a distributed ledger, makes tampering very difficult. Any change would need to be reflected across the entire network at once. Additionally, blockchain allows controlled access. Only authorised participants can see or modify specific data. This granular control significantly reduces the risk of unauthorised access and fraud.
Benefit 4: Transparency
A key strength of blockchain technology is its transparency. This comes from a fully traceable and tamper-proof transaction record. Therefore, every transaction on the blockchain is permanent and unchangeable.
Once verified by the network, it cannot be altered or deleted. This permanence applies even to attempts to modify a transaction. Moreover, hanging it would require altering every single block after it in the chain, a nearly impossible task.
Benefit 5: Improved Liquidity Management
Liquidity describes how easily you can buy or sell something without affecting the price. For digital currencies, more liquidity means steadier prices with less fluctuation.
Blockchain technology has the potential to change how companies handle liquidity. By offering real-time information on a company’s financial health and available cash, blockchain helps treasurers. They get a complete picture of the company’s cash across all entities, departments, bank accounts, and locations, accessible at any time.
Transparency from blockchain technology empowers treasurers to make more accurate cash flow forecasts. It also helps them allocate cash resources more efficiently, for example, in supply chain finance and refinancing activities.
Benefit 6: Reduced Error Rates
Unlike traditional systems where human errors can occur, blockchain uses a network of computers for verification. Thousands of computers on this network work together to confirm each transaction, making errors much less likely.
Even if one computer makes a mistake, it only affects its copy and is rejected by the rest of the network. This strong verification process creates a highly accurate record of information.
Benefit 7: Better Compliance
Financial regulations create a complex compliance challenge for institutions. Blockchain technology offers a solution with its secure, transparent, and permanent record of transactions. It simplifies compliance processes for regulators, who can monitor and audit transactions more easily.
Blockchain can also streamline customer onboarding and anti-money laundering (AML) efforts. Secure identity management using blockchain streamlines these procedures and guarantees accurate records.
Conclusion
Blockchain technology promises a future of secure, efficient, and streamlined cross-border payments. With its shared record of transactions, it significantly reduces fraud and data breaches. By removing middlemen, blockchain also allows for faster, cheaper transactions with greater transparency throughout.
- Blockchain
