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.

Traditional methods of identity authentication often face limitations in security and reliability, exposing user data to potential breaches. Blockchain, however, offers a compelling solution. This article explores how blockchain technology is changing the way industries approach customer verification.

Blockchain and Identity Verification and Management

Customer verification is critical in ensuring the security of accounts and transactions. Traditional identity management systems relied on trusted authorities to issue and manage credentials. This centralised nature makes them lack transparency and vulnerable to data breaches.

Blockchain presents a transformative solution for this issue. This distributed ledger technology offers a secure and transparent way to store and manage data. Each piece of information is cryptographically linked within a chain of blocks. Each block in the chain contains a unique cryptographic hash, acting as a digital fingerprint. And, lastly, each block’s hash incorporates the hash of the preceding block. 

This makes it virtually impossible to tamper with the data once recorded. Any attempt to alter information in a previous block would change its hash, triggering a cascade of changes throughout the chain and exposing the tampering. This inherent security significantly reduces the risk of identity theft and fraud compared to traditional methods.

Another core strength of blockchain technology lies in its inherent transparency. Blockchain technology permanently records every transaction and instance of data entry on a shared ledger, accessible to all participants in the network. This fosters trust by promoting accountability and facilitating immediate verification for activities like dispute resolution.

How Blockchain Improves Efficiency

Customer onboarding for financial institutions hinges on verifying a customer’s identity. Traditionally, this involves multiple document submissions across various institutions. Blockchain technology streamlines this process.

One approach involves storing encrypted personal information (PII) like passports or driver’s licences on the blockchain. Customers would then grant permission to specific institutions to verify their identity. This eliminates the need to repeatedly submit documents for each new financial relationship. 

It also creates a more reliable data source for institutions since everyone would be referencing the same information. Additionally, customer control over access simplifies compliance with privacy regulations.

Case Studies

One example of how financial institutions are leveraging blockchain technology for customer verification is Tradle, a Know-Your-Customer (KYC) platform built on blockchain. This platform utilises bots to scan relevant customer information, such as financial data and employment history, providing banks with verifiable background checks to streamline loan approvals. 

The gathered information is then secured on the blockchain for both internal bank transfers and external data sharing, ensuring its immutability and trustworthiness. This approach offers financial institutions a secure and efficient way to conduct KYC checks, potentially reducing processing times and fraud risks.

Future Outlook

The future of digital identity management appears to be closely linked with the potential of blockchain technology. A report by Market Research Future predicts a surging market, reaching a valuation of $17.81 billion by 2030, driven by government initiatives that promote blockchain development worldwide.

Blockchain’s core strengths—security and transparency—offer a compelling alternative to traditional identity management systems. Ongoing advancements in blockchain technology and a growing focus on digital identity security point towards a promising future.

Blockchain technology has elevated transparency and accountability in the finance industry. By ensuring the integrity and security of financial data, blockchain transforms how financial reporting is done, helps prevent fraud, and secures transactions.

Integrating blockchain into financial systems promotes trust among stakeholders, from investors to regulators. This potential stems from blockchain’s transparency, immutability, and security.

The technology offers investors clarity and security. It provides a transparent view of transaction histories and asset ownership, which reduces the risk of fraud and increases investor confidence.

For regulators, blockchain serves as a tool to improve monitoring and enforcement of compliance with regulations. Moreover, the immutable nature of blockchain records ensures accurate and permanent logging of financial transactions. Additionally, aiding in audit trails and regulatory oversight, particularly in areas like anti-money laundering and know your customer (KYC) rules.

Securing transactions with immutable ledgers

Blockchain’s immutable ledger ensures that once data is recorded, it cannot be easily altered or tampered with. Each piece of information, like transaction details, is stored in blocks and protected by unique hash values.

Hash values are alphanumeric strings generated for each block, linking it securely to the previous block. This chaining ensures that any attempt to change data in one block would invalidate the entire chain. Therefore, making tampering detectable and preventing unauthorised alterations.

The security of blockchain is reinforced by its decentralised nature. Copies of the blockchain are stored across multiple computers in a network, and consensus among these nodes ensures the integrity and originality of the data.

This robust system not only enhances security but also supports applications like smart contracts. These automate and enforce agreements based on set conditions.

Blockchain for real-time auditing

Blockchain technology enables real-time auditing, thanks to its decentralised and transparent nature. This ensures auditors can verify the authenticity and integrity of financial data without relying on centralised authorities or intermediaries.

This capability not only improves audit efficiency but also strengthens trust and confidence in financial reporting. Furthermore, auditors can track transactions from their inception through to completion in real-time, reducing the risk of errors. By eliminating the need for manual reconciliation and audit trails, blockchain reduces the time and resources traditionally required for auditing processes.

Meeting regulatory demands with blockchain

The technology helps businesses meet complex regulatory requirements more effectively. As data entries are permanent and secure once recorded, blockchain ensures information cannot be altered or deleted. It provides a reliable way to consolidate and verify data needed for regulatory reporting.

For regulators, blockchain simplifies oversight by offering a shared platform where transaction details are transparent and accessible in real-time. Moreover, this decentralised approach eliminates the need for extensive manual checks and balances, making it easier to monitor and enforce compliance across various stakeholders.

The ability to streamline regulatory reporting is particularly evident in industries like reinsurance. Here, blockchain facilitates faster and more accurate reporting among insured parties, insurers, brokers, and regulators.

Case Studies

Several financial institutions have demonstrated improved transparency through their adoption of blockchain technology. For example, J.P. Morgan offers a prominent use case, which launched its Quorum blockchain platform in 2016.

Quorum, based on Ethereum, has been used for various applications like debt issuance and financial transaction settlements. Moreover, this platform enhances transparency by providing a secure and decentralised way to record and verify transactions, reducing the risk of errors and fraud in financial operations.

Similarly, the African Development Bank Group (AfDB) partnered with BanQu to develop the Supply Chain Finance Blockchain. Additionally, this platform aims to streamline supply chain finance for SMEs in Africa, making transactions more transparent and efficient. Also, by leveraging this tech, AfDB improves visibility across the supply chain, ensuring funds are allocated and tracked accurately, thereby enhancing transparency in financial operations.

Blockchain payments are becoming more popular. In 2023, the adoption of blockchain payments like cryptocurrencies reached a new height of 420 million users globally, per a Triple-A report. This number is an 800 percent increase compared to the previous year.

Blockchain is a decentralised digital ledger that records and verifies transactions through a network of computers. Unlike traditional payment methods, blockchain payments occur directly between parties. Each transaction is stored in a ‘block’ linked to previous blocks, forming a chronological chain.

The technology provides enhanced security and speed for cross-border payments. International payments used to be a complex process due to the different currencies and banking systems involved. However, the technology can simplify transaction processes significantly.

Speed and efficiency

Blockchain payments revolutionised traditional cross-border payments by enabling faster and more efficient transfers.

The decentralised network used in blockchain eliminates the need for a central authority. It simplifies the verification for transactions and avoids process delays. The technology also allows direct peer-to-peer transactions with no extra parties.

Thus, settlement speeds are much faster than in traditional banking systems. Unlike traditional ones, blockchain payments can be made within minutes instead of lengthy periods of days.

Cost reduction

Blockchain cross-border transactions come with significantly lower transaction fees than traditional systems. This is mainly due to the absence of intermediaries.

It also allows users to get lower currency fees than traditional modes. Moreover, cryptocurrency options offer no currency fees at all.

Security enhancements with blockchain

The security systems used by traditional banks involve third parties, which often means heightened vulnerability. The additional parties might experience operational issues that can affect the banks. Each third-party involvement adds possible risks to the main payment system. Blockchain payments remove the need for additional parties and enhance security with better transparency.

They use a decentralised network where multiple network participants verify and record each transaction. This makes it nearly impossible for system manipulation incidents to happen.

The technology also allows the use of smart contracts. These are digital contracts stored in a blockchain that automatically enforce themselves when specific conditions are met. These AI-powered contracts reduce reliance on transaction intermediaries and avoid potential fraud or errors. This contrasts with traditional systems, which require third parties to safeguard information

Case studies

Some financial institutions have already used blockchain for cross-border payments. Ripple is a prime example of blockchain technology’s effect on cross-border transactions. Its native cryptocurrency, XRP, plays an important role in this. Cryptocurrency can aid faster and cheaper international transactions. Moreover, its worldwide network of financial institutions allows a near-instantaneous settlement.

In the trade finance sector, cross-border payments play an important role. Platforms like Marco Polo have included blockchain payment options in their services.This simplifies and better secures trade financing transactions.

E-commerce platforms also included these payment options, like Bitcoin, to increase global sales. One of the online platforms that accept Bitcoin payments is CheapAir, an online travel agency. Another one is NewEgg, an e-commerce platform for computer parts and consumer electronics.

Future prospects for blockchain payment systems

Blockchain technology is still evolving and more companies will likely adopt blockchain payment systems. The rising need for faster and more secure global payments is expected to drive the broader adoption of blockchain payments.

Among the future trends that involve blockchain payments for cross-border transactions is the rise of central bank digital currencies (CBDCs). CDBCs are a digital version of national currency that is more efficient for cross-border transactions.

More blockchain-based platforms will emerge and further streamline international trade finance processes. These platforms will facilitate end-to-end trade finance, including documentation, tracking, and payment.

The security for blockchain transactions will continue to develop, as zero-knowledge proofs and advanced encryption are increasingly used.

Partnerships with traditional financial institutions and global payment networks will expand. This can further enhance the accessibility and adoption of blockchain payments.

In 2024, blockchain has seen transformative growth. According to a Coinbase report, on-chain projects announced by Fortune 100 companies have increased 39 percent from last year. Furthermore, 56 percent of Fortune 500 executives say their companies were working on on-chain projects.

Major actors in financial services are now embracing blockchain technology. From HSBC, IBM, and Nasdaq to JP Morgan, big names are now driving blockchain innovations. Here, this article explores ten blockchain trends expected to dominate the second half of this year.

1. Decentralised finance (DeFi)

A financial disruptor, DeFi enables peer-to-peer financial services without intermediaries such as banks. DeFi services such as Uniswap, Aave, or SushiSwap offer products and services like lending, trading, and asset management, often at competitive rates.

Under a Decentralised Autonomous Organisation (DAO), governance is placed in the hands of token holders. This results in a more inclusive decision-making process.

2. Smart contracts

Smart contracts are computer programmes that automatically execute agreements when predefined conditions are met.

One example of the financial institutions that have experimented with this is BNP Paribas. In 2020, it announced a collaboration with fintech company Digital Asset to design real-time and settlement applications using DAML smart contracts. It has also been involved in pilot projects for trade finance using blockchain.

Other than finance applications, smart contracts are also used in government services, legal industries, and notaries.

3. Cross-border payments

Most cross-border transactions are complicated and costly. Often, they also involve multiple intermediaries and currency conversions.

Blockchain offers a more efficient and cost-effective solution by allowing funds to be transferred directly between individuals and institutions. Blockchain-enabled payments take only a few seconds compared to traditional payments, which may take 3-5 business days.

Companies like Faster Payments Service, Ripple, IBM World Wire, and Strike have already demonstrated successful blockchain-based cross-border payments.

4. Digital identity verification with blockchain

Last year, 3,205 data compromise cases affected 353 million victims in the US. Nearly all were data breaches, affecting 349 million victims.

Blockchain-based digital identity verification offers a solution to this problem. Personal identity verification protocols like Civic and decentralised identity networks like Sovrin allow users to control their personal information in a way that prevents identity theft and phishing.

Additionally, these platforms simplify and speed up the data verification process, allowing service providers to reduce the time, cost, and resources spent on manual verification.

5. Asset management

Blockchain’s technological capability can reduce the risk of losses when facilitating asset management. Tokenised securities, for instance, allow users to trade digital tokens representing ownership of assets such as stocks, investment funds, and bonds.

An example of this is Paxos Gold (PAXG), an asset-backed digital token with a total market capitalisation of $327 million.

Blockchain also allows for real-time tracking of asset ownership, transactions, and changes throughout the asset lifecycle management.

6. Fraud prevention with blockchain

With blockchain, organisations can permanently track and verify transactions, which makes it a powerful tool against fraud.

Cryptography and encryption techniques help ensure the authenticity and integrity of information, making it difficult to counterfeit. Institutions like Barclays Bank, JP Morgan, and HSBC have already integrated blockchain technology into their payment infrastructures.

7. Supply chain finance

Blockchain-based supply chain finance models are becoming increasingly popular. This is because it allows supply chain partners to share information more easily.

An immutable digital ledger can track all information, from assets to product quality, saving time and money for all parties involved. IBM Food Trust uses this feature in the food supply chain sector. With a permanent, tamper-proof record of every transaction, from farm to table, the technology helps ensure the authenticity and safety of food products.

The Provenance network also uses blockchain to allow consumers to verify the origins and authenticity of products. This system makes sure that product histories are permanently recorded and easily accessible.

8. Blockchain-based trading

This year saw an increasing ownership of digital assets. The global user base for digital currencies reached 562 million people, a significant increase from 420 million in 2023. Within virtual worlds and the metaverse, trading volumes have only been increasing since the bullish run in 2023.

Blockchains can also be used to trade various assets, such as luxury goods, real estate, and intellectual property rights.

9. Internet of Things (IoT)

Blockchain can connect IoT devices to ensure safety in interactions between devices and networks. This feature opens up new opportunities for financial services such as micropayments and decentralised insurance.

Hyperledger Fabric, for example, acts as a distributed transaction ledger for various IoT transactions, helping keep track of millions of connected devices.

Another ledger, IOTA, is specifically designed for the Internet of Things (IoT). It secures sales and trading data streams to facilitate micropayments between IoT devices without transaction fees.

10. Insurance

Smart contracts built on blockchain technology can protect health records and detect fraudulent claims. Aside from that, its ability to automate claims processes can minimise human interference.

Etherisc is a company that claims to be a pioneer in parametric blockchain insurance, having used the technology since 2016. It is a decentralised insurance protocol built on blockchain technology that has developed solutions like flight delay insurance and crop insurance.

Another example is Insurwave, a blockchain-based platform developed by EY and Guardtime in collaboration with insurers and shipping companies.

Unlike traditional databases, blockchain data is distributed across many machines, and all copies must match to be valid. For example, the Bitcoin blockchain gathers transaction data into a 4MB file called a block. Once full, the data is encrypted to create a unique hash, which links to the next block, forming a chain.

Blockchain decentralisation means data isn’t stored in one place but across many computers or devices in a network. This ensures data redundancy and accuracy. If someone tries to alter a record on one computer, other nodes in the network detect the change by comparing block hashes, preventing unauthorised modifications.

Once data, like cryptocurrency transactions, is recorded, it’s irreversible due to secure proof of work. Blockchains can also securely store various information types, such as legal contracts or inventory records, by representing them as tokens through hashing.

Blockchain in financial services

In the financial sector, blockchain makes sending funds faster and cheaper, particularly for international transactions.

Traditional bank transfers can take days and involve various intermediaries, each adding fees. In contrast, the technology allows transactions to be completed in minutes, reducing time and costs.

Supply Chain Management

In supply chain management, blockchain provides a way to track products—from their origin to their final destination. This transparency helps companies quickly identify when and where problems occur. For example, this could allow them to pinpoint the source of contamination in a batch of food products By having single source of truth for every step in the supply chain, companies can ensure the authenticity and quality of their products, improving consumer trust and safety.

Blockchain in healthcare

In healthcare, blockchain can be used to store patient records securely, allowing them to be easily shared between doctors and hospitals while maintaining privacy. This ensures patient information is accurate and up-to-date, which is crucial for effective medical treatment. Additionally, blockchain can help streamline administrative processes and reduce errors in medical records.

Other applications for Blockchain

Blockchain also has the potential to revolutionise voting systems by making them more secure and transparent. Each vote can be recorded in a way that is nearly impossible to alter, ensuring the integrity of the election process. This technology can help reduce fraud and increase voter confidence, as every vote is accurately counted and verified.

The real estate industry can benefit from this tech by simplifying and securing property transactions. Blockchain can reduce the need for intermediaries like brokers and lawyers, making the buying and selling process faster and more transparent. This can also help prevent fraud and ensure that property records are accurate and tamper-proof.

Digital identity management is another area where blockchain can play a significant role. By creating secure digital identities, blockchain can help individuals prove who they are online without sharing excessive personal information. This can improve security and privacy for online interactions, reducing the risk of identity theft and fraud. Blockchain-based digital identities can be used for a variety of purposes, from logging into websites to accessing government services.

Blockchain technology offers numerous benefits across different industries, and its applications continue to grow, demonstrating its potential to transform various aspects of life.

Financial crime has evolved to be more sophisticated, and malicious actors continuously exploit vulnerabilities to commit fraud and theft.

Nasdaq and Verafin’s 2024 Global Financial Crime Report said that around $3.1 trillion of illicit money flowed through the global financial system last year. The funds went into crimes such as terrorist financing, human trafficking, and drug trafficking.

The same report also revealed that $485.6 billion were lost to scams and schemes. Around $6.7 billion was lost to business email compromise, while $3.8 billion was lost to romance scams and similar schemes. No less than $77.7 billion in fraud was stolen from elderly victims.

How can blockchain prevent fraud?

Blockchain is an immutable digital ledger. When used accordingly, it can heighten the security of various transactions with its decentralised framework.

Each transaction on a blockchain is accessible to all participants within the network. This results in real-time auditability and verification, which can prevent data manipulation and fraud.

Since the recorded data is distributed across many computers, it becomes more resistant to manipulation. Any transaction data recorded there cannot be altered or deleted. The process creates a permanent audit trail, which makes it difficult for fraudsters to cover their tracks.

There are several blockchain-powered mechanisms that can help prevent fraud in transactions. One example is identity verification using cryptographic techniques. All recorded identity information is digitally encrypted and stored in the network. Like consensus mechanisms, digital identity verification works through multi-factor authentication, making it difficult for criminals to misuse identity data.

Another example is smart contracts. These are computer programmes that execute agreements automatically between two parties. It can automate financial transaction processes, minimising human intervention and exploitable errors.

Case studies

Several financial institutions have successfully implemented the blockchain technology to combat fraud. Last year, Nasdaq executed the first-ever share trade using blockchain with its proprietary Linq platform. Nasdaq enabled the startup Chain to sell shares to an unnamed technology investor.

Linq provides a historical record of securities issuance and transfers, enhancing governance, transfer of ownership, and auditability. With blockchain, Linq reduces risks associated with delayed settlements and administrative burdens.

Barclays Bank, on the other hand, has been exploring blockchain’s potential applications over the past years. To enhance the safety of transactions, the bank uses blockchain in its payments infrastructure and smart contracts in its post-trade processes. Additionally, Barclays is an investor in ‘Utility Settlement Coin’ (USC), a blockchain project aiming to reduce risks in trading processes.

JP Morgan also leverages blockchain technology to mitigate fraud in its transfer system. The company uses Confirm, a global account information validation application on the blockchain, to allow partner banking institutions to request confirmation of beneficiary account information. Partners receive near-real-time responses from other participating banks.

Aside from reducing processing and verification time, the method heightens the safety of transactions. Payments can be sent through J.P. Morgan’s global clearing solution only after they are validated by Confirm.

Challenges and opportunities ahead

Despite the promising potential, blockchain technology faces several challenges in its fraud prevention application.

Blockchain is still relatively new and has not been widely adopted across the financial industry. Therefore, it lacks clear regulatory frameworks to operate, which results in uncertainty that hinders its adoption. Furthermore, current blockchain platforms often face scalability issues that limit their ability to handle large volumes of transactions.

Before blockchain is available for large-scale applications, financial institutions and developers must address these concerns.

Still, the future of blockchain in reducing financial fraud appears to be promising. In 2022, KPMG’s Banking Industry Survey revealed that 92 percent of senior executives said their banks offered or were planning to offer blockchain processes to their customers.

With increasing advancements, blockchain’s integration into the financial sector is likely to increase.