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Across the Border: Blockchain in Cross-Border Payments


Even as blockchain is being widely used in cross-border payments, we look at the potential for widespread adoption, as well as the progress made thus far.

An Offering for the World

There is a lot of speculation that surrounds the future of blockchain and how it will be used in the world. While blockchain itself has many use cases from the finance industry to sports, it is not entirely clear for now just what application will elevate blockchain to the level of global use that it seeks. One thing is clear though; whatever application will be instrumental in the adoption of blockchain, it would have to be one that is used in every country in the world, used regularly enough, and is an essential function that cannot be taken out of the equation of human life.

There are many possible candidates for this role but one of the most likely is cross-border payment settlements which have seen great progress in the last few years with the adoption of blockchain. From all indications, it seems that blockchain is on track to truly revolutionize that aspect of the financial world.

One only needs to look at how many use cases have been developed in recent times and how quick both world governments and private institutions have been to get in on the action on a global scale.

The use of blockchain for cross-border payments speaks to the heart of why blockchain is the future in the first place, which is that it works to improve on existing systems all the while creating more convenience for both producers and the consumers within the financial ecosystem.

A Better Method

Cross-border payments have been in existence as long as human beings have been moving products across country lines. This is because goods and services are obviously needed to be paid for in one country by those who live and work in another, and this was only increased by the advent of international trade and the Industrial Revolution.

With this revolution came the obvious problem in the fact that different countries make use of different currencies and value systems and so there was a need to create a uniform standard through which payments could be made across the globe. While global trade has only gotten more robust in the last few centuries and the advent of the internet made cross-border payments easier, there are still many challenges and inefficiencies recorded in the traditional system.

While domestic payment systems have been made to be cheaper and much faster over time with applications such as the Cash App, Venmo and so on, international payment settlements are still lagging behind with two major issues. The first is that they are slow. On average, it can take anywhere from 1 to 4 business days for funds to reach an overseas account and in some cases, this takes even more time compared to local payment systems in which payments can be settled within seconds of sending.

This obviously is a source of frustration for consumers who are becoming accustomed to quick settlements at home and see no reason why they cannot enjoy the same whilst sending funds abroad. They are also expensive as the sending of funds abroad can cost anywhere from $25 per transfer to up to $100 depending on the amount being sent and as such, the final receiver of the funds rarely receives a the entire amount that was sent.

For a long time, it was seen that this expensive and slow system was the best that could be done for the consumer and that they would simply need to get used to it. Then came blockchain.

Blockchain in the Cross-border Space

Sending cryptocurrency from one party to the other is rather cheap and quick compared to traditional payment methods and on many blockchain networks, there is a bit of a race to the bottom in which various networks are seeking to send funds for the lowest fees and in the quickest time, a notable example of this was when Ripple sent millions of dollars worth of XRP from one user to another with less than a cent charged as a transaction fee.

Within the cross-border-blockchain payments space, there are two companies that reign supreme and these are R3 and Ripple.

R3 is an enterprise software firm which is famous for its consortium of over 200 various financial institutions who make use of their Corda platform, which is a blockchain-powered platform for financial transaction settlements. Among the firms that have made use of R3’s technology is the bank of Thailand, SMBC and Barclays. Even Swift, which is considered the default standard of international payment settlements in the world, has collaborated with R3 in the past. For many, this was seen as a way for SWIFT to keep up with the times and not be shut out of the market as faster payment methods are being realized.

Ripple is a gross settlement payment processor that supports both fiat and cryptocurrency as what does its native XRP token. It is well known for its speed in transactions and has been used by various companies such as UPS and Santander, it is increasingly being adopted by banks across the world as an alternative to the current payment system.

One very interesting use case is Dash text, which was created by Dash as a means to send payments in Venezuela and other Latin American countries in order to combat the current economic crisis in which citizens often spend hours at ATMs in a bid to withdraw funds. This system helps them send funds from one person to another, even in other countries, simply by text message.

Ushering in the Future

Blockchain and cryptocurrencies are quite disruptive in nature, and their activity in the cross-border payments space has forced a lot of traditional companies to leave their comfort zone or risk being pushed out. Western Union, for example, has collaborated with both Coin.ph to generate crypto wallets as part of an expansion to the Philippines and has also partnered with Thunes for mobile wallet transfers.

These collaborations take place not only between companies but also between countries as well; the United Arab Emirates and Saudi Arabia, for example, have launched a joint cryptocurrency that will enable the settlement of cross-border payments between both countries which is which was the first of its kind in the world.

Perhaps the most ambitious project thus far is JP Morgan announcing the launch of its JPM coin, which will also be used to settle cross-border payments. Across all of these products and collaborations, there is a strong message that this aspect of the financial world must be improved upon. Even though traditional institutions continue to handle over 95 percent of these transactions, the use of blockchain and crypto is a legitimate threat to their monopoly and thus, they seek to get in on the action.

Regardless of which firms come up on top, it cannot be denied that should blockchain become the standard for the millions of cross-border transactions, it would have firmly embedded itself into not only public consciousness but also become an indispensable public tool that will guarantee it a place in the future for decades to come.

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