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Transforming International Transactions: How Blockchain Revolutionizes Cross-Border Payments

Industries worldwide are adopting advanced technological solutions to become more effective and keep up with the growing needs of their consumers, the payment industry being a perfect example of this trend.

The cross-border payment market plays a critical role in the global economy, and it’s estimated to exceed $42.7 trillion by 2026. And yet, conventional payment systems and methods have had their fair share of challenges, including high fees and delayed and restrictive transactions. 

For this reason, more and more new players have been emerging recently, seeking to address the existing inefficiencies and limitations of payment systems by applying blockchain technology. 

In order to determine why many businesses look favorably upon blockchain, let us take a closer look at some of the aspects of blockchain-related transactions and how they can help in accelerating the evolution of cross-border payments.

How Blockchain Technology Can Transform Cross-Border Payments

Payment Systems Made More Transparent and Secure. Blockchain technology can provide businesses and individuals carrying out cross-border payments with inherent security and transparency. First, each transaction recorded on the blockchain network is encrypted and linked to previous transactions, thus creating a digital print. Besides maintaining data integrity, this feature makes it extremely difficult for hackers to alter the information once it’s validated. Another aspect is that transactions are recorded on a fully auditable and immutable ledger, making them visible to all network participants, ultimately reducing the possibility of fraud.   

Reduced Number of Intermediaries Means Higher Transaction Efficiency. The increased number of third parties has been one of the biggest challenges in the current cross-border payment systems. Because traditional banks have multiple intermediaries between the sender and receiver, transactions tend to take a prolonged period of time to be completed, at times lasting up to 10 business days in some parts of the world. Blockchain transactions, however, are direct between parties, which allows for a more seamless experience. They can be conducted anywhere globally and concluded almost instantly. Banco Santander is one example of a financial institution that leveraged blockchain to reduce its processing time for cross-border payments from 5 days to seconds. It also helped cut down transaction fees.

A Path to Greater Financial Inclusion

It’s estimated that nearly 1.4 billion adults globally are unbanked. However, digitalization of financial services, including cross-border payments, can have a significant impact in addressing the issue of financial inclusion, especially in places where people lack access to reliable bank services or have little trust in the banking system.

As previously mentioned, blockchain technology offers less expensive, secure, and faster payment processing methods than are direct between users, thus eliminating the need for banks. As an additional advantage, blockchain transactions support small money transfers internationally, which tends to be a concern for unbanked people.

Furthermore, as crypto payments represent a borderless financial solution not requiring traditional banking infrastructure, this global coverage reduces barriers for businesses that seek to enter new markets. This allows companies to expand their customer base and touch upon previously untapped opportunities.

A good example to illustrate this point would be Kotani Pay, a fintech startup leveraging blockchain to drive financial inclusion in Africa. The company enables its users to send, receive (transact) and convert crypto to fiat from their blockchain wallets to mobile wallets through USSD (no need for internet).

What Obstacles Yet Stall Wider Adoption of Blockchain-Based Payments?

Despite blockchain technology emerging as a reliable and promising alternative for conducting cross-border payments, there are some roadblocks that limit its broader adoption in payment systems worldwide.

Lack of Education. There is a prevalent lack of understanding among the general audience in regards to blockchain and cryptocurrencies, which creates a significantly forestall wider adoption of these technologies in payment systems. Without having a clear comprehension of how they function, people are hesitant to embrace them, leading to limited acknowledgement.

Educational initiatives from both crypto companies and global regulators are necessary for the public to gain a better understanding of the way these things operate. It is a crucial step to clear if we are to bridge this gap and foster broader acceptance of these transformative technologies in everyday realities.

Regulatory Concerns. For blockchain networks to provide cross-border payment services, they need to be more broadly integrated into the systems of financial institutions and payment providers. And that, in turn, means having to comply with global or region-specific regulations, which can be complex considering blockchain’s decentralized nature. 

At present time, there is no clear regulatory framework around cryptocurrencies and smart contracts, among other blockchain-related applications. As a result, financial institutions are hesitant to adopt solutions based on this technology, since it means stepping into a legally gray area.

Scalability Issues. Low scalability is another issue that could limit blockchain adoption in the payment industry. Often, transaction speed on a blockchain network depends majorly on the number of users or the computational power of the devices involved. As more users participate in a network and the number of transactions increases, the system resources will be strained more, leading to slower transaction processing speed.

Efforts are being made to address scalability concerns with solutions like sharding or Lightning Network. At CoinsPaid, for example, we employ the GAP600 solution (a crypto transaction engine) to expedite payments conducted on our platform, enabling instant settlements for our clients. Users can conduct their financial operations and have the funds credited to their accounts without the need to wait for transaction confirmation. However, the limitation of this service is that it only works for a number of coins utilized on our platform, rather than all of them.

Overall, it will be necessary to make such measures more widespread before blockchain-based payments can truly become viable for everyday use cases.

Bottom Line

Blockchain has a significant role to play in improving cross-border payments and addressing some of the existing inefficiencies that traditional payment systems face. With the adoption of this technology, cross-border transactions can become much more efficient and user-friendly. Above all, it will serve to enhance financial inclusion in countries with unbanked populations.

And while there are still some issues that need to be addressed before global adoption of blockchain can happen in earnest, the transformative potential it has for the international financial stage cannot be understated.

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Comments: (1)

A Finextra member
A Finextra member 21 July, 2023, 13:21Be the first to give this comment the thumbs up 0 likes

Seem to have omitted need for wire transfer regs compliance: full ULTIMATE payor and bene information, shared end to end with all PSPs and VASPs in the chain, with pre-scrreing and seizure of funds in the event of a sanctions 'hit' until verified to be a false positive.

Eugen Kuzin

Eugen Kuzin



Member since

20 Jul



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This post is from a series of posts in the group:

Blockchain in Banking and Financial Services

This group is to share any information related to enterprise wide Blockchain technology adaption in different Banking Financial Services sub-domains.

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