World Bank Article on Cross-Border Payments: xRapid Saves Significant Time & Cost


Earlier this week, The World Bank released an article titled, “Paying across borders – Can distributed ledgers bring us closer together?” where it talks about the ample opportunity and need for innovation in payments space where the use of DLT and blockchain-based solutions is highlighted by Ripple, Circle, JP Morgan, and Visa.

Rodrigo Mejia-Ricart, who authored the article is a research and public policy analyst at the Better Than Cash Alliance, a UN-based partnership of over 60 companies, governments, and international organizations that works on driving the global transition from cash to digital payments.

Talking about the remittance industry, he shares that personal remittances are the key part of economies as it represents 10.5% of GDP in the Philippines, and 29.3% in Haiti. In 2018 global remittances grew 4.6%, reaching the record high of $642 billion.

Recognizing the need for remittances in emerging economies, the international community is working towards making it safer and more efficient. Though a significant decline in the price has been seen over the last decade, it is still high as in Q4 of 2018, the average cost of global remittance was 7% which is 4% higher than the set target of 3% for 2030.

Furthermore, it is even more expensive in the areas where they are needed most like Sub-Saharan Africa where this cost is 8.97%. Here, the author says, cross-border payment innovation can help in reducing the operational costs.

DLT-based Solutions, Disruption & Challenges

The shortcomings in the form of slow and opaque payments, the payment systems being located in different time zones, the involvement of intermediaries and several banks lead to higher fees, which the author says makes the market ripe for disruption and innovation.

Solutions to these issues that are actively tested in the market involves Ripple that has piloted xRapid across the “very competitive” US-Mexico corridor that saves significant time and cost in the process.

“Financial institutions involved in the pilot saved 40%-70% in foreign exchange costs, and the average payment times was just over two minutes. The transfer of funds on xRapid took two to three seconds, with most of the processing time explained by domestic payment rails and intermediary digital asset exchanges.”

The article further mentions Circle that provides peer-to-peer instant money transfers, whose Circle Pay is currently available in 29 countries and allow transfers between US Dollars, Euros, and British Pounds.

SWIFT also implemented a proof of concept using DLT this year and SWIFT GPI can deliver payments within a day or sometimes within minutes. While JP Morgan has developed JPM Coin, Visa’s B2B Connect is testing a DLT solution for B2B cross-border payments.

With the way, the payment and banking giants are working with blockchain technology and DLT, does this mean “the future of cross-border payments distributed?” Ricart says, it offers a promising pathway to dramatic improvements but it has its own challenges in the form of broad adoption.

Also, he says a framework is needed for these solutions across multiple jurisdictions and furthermore, it remains unclear if these solutions will be able to outperform other technologies that are available in the payments space.

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