Cross-border payments are transactions that involve sending money from one country to another. They are essential for global trade, remittances, e-commerce, and other forms of international financial flows. However, traditional cross-border payment systems are often slow, costly, and complex. They rely on intermediaries such as banks, payment processors, and correspondent banks, which add fees, delays, and risks to the transactions.
Blockchain technology has the potential to transform the cross-border payment industry by enabling faster, cheaper, and more transparent transactions. Blockchain is a distributed ledger that records transactions in a secure and immutable way. It can eliminate the need for intermediaries and central authorities and allow direct peer-to-peer transfers of value across borders.
Blockchain can offer several benefits for cross-border payments, such as:
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Speed: Blockchain transactions can be settled in minutes or seconds, compared to days or weeks for traditional systems.
Cost: Blockchain transactions can reduce or eliminate the fees charged by intermediaries and lower the operational and compliance costs for payment service providers.
Transparency: Blockchain transactions can provide real-time visibility and traceability of the payment status, exchange rates, and fees for all parties involved.
Security: Blockchain transactions can enhance the security and privacy of the payment data, and prevent fraud, errors, and disputes.
Inclusion: Blockchain transactions can enable access to cross-border payments for unbanked or underbanked populations and support financial inclusion and innovation.
Several blockchain-based platforms and solutions have emerged in recent years to facilitate cross-border payments. Some examples are:
Ripple: Ripple is a global payment network that uses its own cryptocurrency, XRP, as a bridge currency to enable fast and low-cost cross-border payments. Ripple connects banks, payment providers, digital asset exchanges, and corporates, and claims to process over 1.5 million transactions per day across 55+ countries.
Stellar: Stellar is a decentralized network that connects banks, payment systems, and people to enable cross-border payments in any currency pair. Stellar uses its native token, XLM, as a medium of exchange, and leverages smart contracts and atomic swaps to enable interoperability and scalability. Stellar claims to process over 10 million transactions per day across 180+ countries.
IBM Blockchain World Wire: IBM Blockchain World Wire is a global payment network that leverages the Stellar protocol to enable cross-border payments in any currency pair. IBM Blockchain World Wire connects banks and other financial institutions and allows them to clear and settle cross-border payments in near real-time using digital assets of their choice.
Libra: Libra is a proposed global digital currency that aims to enable cross-border payments for billions of people around the world. Libra is backed by a reserve of assets consisting of bank deposits and short-term government securities from stable and reputable central banks. Libra is governed by the Libra Association, a consortium of 27 members from various sectors such as technology, finance, social impact, and academia.
Blockchain technology is still evolving and faces some challenges and limitations for cross-border payments, such as:
Regulation: Blockchain technology is subject to different regulatory frameworks and standards across different jurisdictions, which may create uncertainty, complexity, and inconsistency for cross-border payments. Regulatory clarity and harmonization are needed to ensure compliance, trust, and adoption of blockchain-based solutions.
Scalability: Blockchain technology has inherent trade-offs between speed, security, and decentralization, which may limit its scalability and performance for high-volume cross-border payments. Technical innovations and optimizations are needed to improve the throughput, latency, and efficiency of blockchain transactions.
Interoperability: Blockchain technology operates on different platforms and protocols that may not be compatible or interoperable with each other or with existing systems. Interoperability solutions are needed to enable seamless communication and integration between different blockchain networks and legacy systems.
Education: Blockchain technology is still relatively new and complex for many users and stakeholders in the cross-border payment industry. Education and awareness are needed to increase the understanding and acceptance of blockchain technology and its benefits.
Blockchain technology has the potential to revolutionize the cross-border payment industry by simplifying international transactions. However, blockchain technology is not a silver bullet that can solve all the problems of cross-border payments. It requires collaboration, innovation, regulation, education among various actors in the ecosystem to overcome the challenges and realize the opportunities.