The Future of Payments: Crypto and Blockchain Solutions Revolutionizing Cross-Border Payments

Picture receiving payments in any currency from different countries and instantly being able to withdraw in your preferred currency. Such efficiency and convenience. Well, crypto and blockchain technology in the payment industry has revolutionized how money moves.

In 2023, the total market size for the cross-border payments industry was approximately $190 trillion. And it is expected to grow at an average of 5% per year over the next decade. 

Despite the size of the market and expected growth, cross-border payments continue to be characterized by inefficiencies, transaction delays, and high fees. This situation is especially due to the limitations and numerous intermediaries within the traditional finance setup.

As a result, companies and individuals are shifting toward blockchain and crypto solutions for cross-border payments. This article discusses blockchain for cross-border payments; showing how crypto solutions streamline global payments.

How Does Blockchain Make Cross-border Payments Better?

According to a recent study, the cross-border payments failure rate is approximately 11%. This means that in 2023 alone, about $3.8 billion worth of sales were lost due to cross-border payment failures. 

The complexities of cross-border payments go beyond failures. A survey in which Citibank clients participated showed that 59% of the participants experienced extended settlement times and high fees. 

Notably, international wire payment and settlement can take up to five days. According to Ripple, a blockchain payment company, speed, and transaction cost are the most cited constraints in traditional methods of cross-border payments.

In contrast, blockchain for cross-border payments offer low cost, speed, and transparency. Blockchains such as Solana, for instance, charge as low as a fraction of a penny for each transaction. 

Volatility Problems

However, the biggest concern with crypto for payments is high volatility. Stablecoins, supported by popular payment solutions such as Paypal, eliminate the volatility concerns. Also, with stablecoin swaps, the exchange rates are more favorable compared to exchange rates offered by traditional banking institutions. 

Impressively, in 2022 payments settled in stablecoins were worth over $7 trillion; an increase from the $6 trillion in 2021. This is noteworthy, considering the limited media coverage and massive market cap losses for volatile cryptocurrencies. In 2023, over $10 trillion worth of payments were settled in stablecoins; a figure that is expected to keep growing.

Cross-border payments are slow, error-prone, and costly due to the series of intermediaries. Blockchain eliminates intermediaries.

Cross-border Payments Blockchain Companies

Over the past few years, blockchain has been integrated into different industries, including payments. Blockchain adoption is projected to grow at a CAGR of about 57%; a clear indication of the technology’s popularity.

The top Cross-Border Payment Companies using Blockchain and crypto solutions for cross-border transactions include:

• Electroneum
• Tassat
• BloomX
• InstaRem
• SatoshiPay
• Xapo
• PlasmaPay
• Lightnet Group
• Wirex

What Are the Advantages of a Blockchain for Cross-Border Payments?

High Speed: Blockchain-based payments are fast; ranging from a few minutes to seconds. This is possible due to the elimination of many intermediaries. 

• Low Cost: Blockchain payments are considerably cheaper compared to traditional cross-border transactions. This can also be attributed to the elimination of the many middlemen that charge fees at different stages of international transfers.
• Privacy and Transparency: All transactions are recorded in a public and transparent ledger that can be viewed by all parties. However, participants’ identities are pseudonymous; ensuring privacy. Individuals can transact and purchase assets anonymously.
• Security: Cryptography, used in blockchain transactions, ensures integrity and security; meaning the possibility of fraud is reduced significantly.
• Borderless: You can send and receive money from anywhere in the world with blockchain solutions; making payments frictionless and global. International borders are non-existent in the blockchain space.

Are Blockchain-based Cross-border Payments Safe?

Blockchain and crypto solutions for cross-border transactions are built on the concepts of distributed ledger technology, decentralization, and cryptography. These principles ensure the highest level of security in transactions.

Distributed ledgers enable every user within a particular blockchain network to access the ledger. Also, every transaction is verified through a consensus mechanism before it is recorded in the ledger. As such, recorded transaction data cannot be altered.

In addition, blockchain-based payment solutions use encryption for the protection of users’ private keys and personal data. This adds another security layer; protecting user funds from hackers and other malicious participants.

Risks

However, like any other global systems, blockchain-based payments and crypto solutions for cross-border transactions are not 100% immune to risks. Individuals have to observe stipulated measures to protect themselves and their assets.

These measures include the use of secure passwords, proper storage of private keys, and use of two-factor authentication.

Key Use Cases for Blockchain in Cross-border Payments and Settlements

Here are some of the potential use cases for cross-border blockchain payments.

E-commerce

By 2030, e-commerce will be the largest segment in B2B cross-border transactions worth over $22 trillion. Blockchain payments offer a transparent, immutable, and secure method of shopping online. It provides both customers and merchants a convenient and trustworthy payment process.

Crowdfunding and Charity

Blockchain solutions can facilitate crowdfunding; allowing participants from different areas in the world to deposit funds directly into an initiative or project. Also, the need for intermediaries is eliminated while accountability and transparency are increased. 

Micropayments

This refers to online transactions usually less than $10 to as little as a cent. Royalties, pay-per-click adverts, tips, and credit card verification fees are examples of micropayments. 

Blockchain-based payments offer very low fees enabling low-value transactions that were not feasible with traditional payment systems. In addition, cryptocurrency units can be shrunk to a great extent, for example, 1 ‘sat’ in bitcoin is worth 0.00000001 BTC. This allows for micro-loans and micropayments.

Remittances

Crypto solutions for cross-border transactions streamline remittance processes enabling cheaper and faster transfers. This is especially beneficial when funds are transferred with extensive financial exclusion. 

Supply Chain

Blockchain-based payment solutions enable streamlined supply chain payments by providing a much more efficient system for paying global partners and suppliers.

Subscription Services

Blockchain payment systems can improve subscription services through the automation of recurring payments. Blockchain networks such as Ethereum allow for the creation of automated solutions through the use of smart contracts; simplifying subscription management.

Intra-company and Treasury Flows Payments

Company treasuries often have to move funds within their organizations to meet regulatory and operational liquidity requirements.

When these payment flows require moving funds between international banking systems, using blockchain may be a cheaper and faster option. 

Even better, when stablecoins are used, companies overcome liquidity constraints often associated with the movement of money from emerging markets.

Investment and Trading Platforms

With blockchain, Trading, and FX platforms can efficiently settle payouts and payments to and from different markets globally with high speed. This is enabled by the use of fiat-pegged stablecoins such as USDT.

The Future of Cross-border Payments

Does the future of cross-border payments need blockchain? Looking at the impact of blockchain on cross-border payments, the most transformative factors are speed and low cost of transactions. 

Unlike in traditional payment systems where cross-border payments take days, blockchain enables instant transfers, settlement, and custody.

There is potential for more innovation to explore how cryptocurrency can streamline global payments. Areas such as privacy enhancement, asset management, real-world asset tokenization, and transaction cost reduction will benefit from more blockchain-based innovative solutions.

More individuals and businesses are experiencing the advantages of blockchain for cross-border payments. As such, the payments industry is set to shift toward emerging technologies specifically Blockchain and crypto solutions for cross-border payments.