Blockchain’s Growing Role in Cross-Border Payments is Destined to be a True Game Changer
Blockchain has been making a buzz for quite some time now and the ‘distributed ledger blockchain’ has been widely talked about by banks. Many of the banks and financial institutions have set up innovation labs to conduct proof of concepts to be able to harness the modern day technology around blockchain.
Remittance is a fund transfer transaction wherein funds are moved from one account to another account within the same or other financial institution. In a cross-border payment, SWIFT handles only the movement of messages along the payment chain.
The correspond the final bending banks do the actual debits and credits across accounts based on the message and help pass on the value to the final beneficiary. Cross-border payments account for about 40% of global payments transactional revenues with payment flows of more than $135 trillion during 2016
Industry studies have revealed that regulatory and compliance issues are the two biggest factors which are believed to have contributed towards internal resistance to adoption of blockchain.
Factors to be addressed by blockchain
While the benefits of blockchain like the enabling of trust, user empowerment, reliability owing to the decentralized network, enhancing transparency, reduced time for settlement of transactions, and reduced transaction costs were known to the financial services conducting PoC’s.
Given below are a set of critical factors that have to be addressed before an industry-wide adoption takes place.
- Lack of standardization
- Cost and time benefits with added payment transparency
- Data protection and privacy
- Compliance and regulatory reporting
Blockchain as a solution
To overcome the current structural weaknesses, financial institutions and banks are adopting blockchain to offer near-instant cross-border payments at lower costs, higher security and more reliability. With blockchain, payments are tamper-proof and accurate, thereby trimming costs associated with the investigation of cases and litigation.
A cost-efficient, faster and secure cross-border payments system will boost international business while ensuring that migrants aren’t charged exorbitant rates for sending money home and more people are included in the present financial system.
Blockchain is the future of cross-border payments. Companies that realize their potential and begin exploring ways to incorporate it will have a distinct advantage over competitors who stick with the status quo.
Current cross-border payment solutions
Given below are a list of 5 prominent cross border payment solutions currently being offered.
- IBM World Wire: is the most recent blockchain network for cross-border payments, and likely a distribution play vs. novel concept
- JP Morgan Interbank Information Network:
runs Quorum, an Ethereum blockchain variant, has over 200 banks in a network and will use JPM Coin for cross border payments
- Ripple: more than 200 banks use the RippleNet network which utilizes a “stablecoin” or fiat currency
- VISA B2B Connect: uses the Hyperledger Fabric framework and APIs to allow partner banks to develop B2B payments for cross-border & cross-currency exchange
- SWIFT GPI: adopted by 3,500 banks – and though it does not currently offer a blockchain solution, it's expected that they soon will