Cross-border payments suffer from inefficiencies such as high fees, slow settlement times and a lack of transparency, making international transactions costly and time-consuming.
Blockchain Technology offers transformative potential to address these challenges by streamlining processes and reducing costs.
THE PYMNTS Intelligence report “Can blockchain solve the cross-border payments puzzle?“explored how blockchain could revolutionize cross-border payments, assessed its current adoption, and examined future implications for financial institutions and businesses.
Understanding the Disadvantages of Traditional Railways
Traditional cross-border payment systems are plagued by high fees and long processing times. These methods rely on correspondent banks and clearing houses, leading to inefficiencies.
For example, cross-border consumer payments often incur bank fees of over 11%, which can reduce the value of smaller transactions. B2B Payments are impacted, with average fees of 1.5% and processing times of up to several weeks. Nearly half CitibankBusiness customers identify high costs as a pain point, and 59% cite slow speeds as a problem.
The lack of transparency in traditional payment systems is compounding existing problems. In 2023, U.S. e-commerce businesses experienced an 11% failure rate in cross-border transactions, resulting in $3.8 billion in lost sales. The difficulty in identifying the cause of failure is hampering recovery efforts and eroding customer trust, highlighting the need for a more efficient and transparent payment solution.
Blockchain is redefining cross-border payment systems
Blockchain technology addresses the inefficiencies of traditional payment systems by using distributed ledger technology (DLT) to enable direct transactions without intermediaries. This approach reduces costs and speeds up payment deadlineswith transactions potentially completed in seconds rather than days.
According to the report, authorized Decentralized Finance (DeFi) could reduce transaction costs by up to 80% compared to traditional methods. Features such as automated record-keeping and smart contracts improve transparency and efficiency, while stable coinspegged to fiat currencies, alleviating volatility concerns. Visa And Shopify have entered into separate partnerships with Solana to test stablecoin payments, highlighting the growing acceptance of blockchain.
In the same way, PayPalCross-border monetary service of Xoom allow Users can transact with PayPal’s USD stablecoin, indicating the growing appeal of this use case beyond blockchain enthusiasts.
Permitted Blockchain Models improve security by limiting transactions to verified participants, making blockchain more attractive to financial institutions and central banks.
Developing blockchain solutions for cross-border payments
The rise of blockchain-based cross-border payments is increasing, driven by initiatives from financial institutions, FinTechs and central banks.
In March, the Solana network processed $1.4 trillion in stablecoin transactions, highlighting the scalability and benefits of blockchain. Central banks are also pushing blockchain technology forward, with Bank for International Settlements collaborate on Agorá Project integrate tokenized bank deposits into central bank currency. Additionally, 41% of central banks worldwide are considering launching central bank digital currencies over the next five years, signaling a trend toward blockchain to improve cross-border payments.
Traditional cross-border payment systems are increasingly inadequate in today’s rapidly changing global economy. due to their ineffectiveness. Blockchain technology offers a promising alternative by reducing costs, speeding up transactions and improving transparency.
Companies engaged in international trade could benefit from the adoption of blockchain, overcoming the limitations of outdated systems and achieving greater efficiency and reliability in their transactions.
