The global payments sector is error-prone and costly. Cases of money laundering are also common. Besides, it takes days for initiating international transfers of money as well as gives limited visibility to transactions. Blockchain is changing this paradigm of global payments industries. Since 2009 when Bitcoin came into existence, it has enabled low-cost, reliable, and fast peer-to-peer transactions.
The pain points of global payment sectors are:
1. Speed
2. Cost
3. Limited visibility
Based on McKinsey & Company report, cross-border payments solely cover 40% of global payments transactional revenues with payment flows of more than $135 trillion in 2016. In the future, the digital revolution is going to take over the payments arena in the long run. In this situation, banks would need to minimize the back-office costs for international payments by 90% percent according to reports.
Conventional money transfers such as Moneygram and WorldPay are also being used to transfer money overseas. The fees involved in these platforms to transfer money are lesser than the banks. Also, the speed for transferring money is low (five to six business days). Therefore, a number of companies are exploring ways to use blockchain to reduce cross-border costs and speed up transactions. With Blockchain, the cost of cross-border payments will decrease and customers will have improved transparency over the transactions.
How Blockchain Revamps Cross-border Payments
Blockchain has the potential to eliminate these issues and change the way cross-border payments are done. It is faster and provides greater visibility between two parties at a lower cost. A person in a blockchain network can see every single entry into the ledger of transactions. It provides privacy as well since the transaction details are shared among all parties who are participating in it. Also, a high level of security is available because it forms an immutable ledger of transactions. Since transaction records are tamper-proof, Blockchain eliminates concerns about fraud.
All the manual processes involved in the work of cross-border payments are time-consuming and prone to mistakes. But blockchain can automate transactions via smart contracts. Actions can be described and performed by “smart contracts,” which make sure that all parties are abiding by the rules and which automate (and therefore expedite) transactions. Hence, blockchain makes the operations involved in international payment faster and more cost-effective.
Industry Players Adopting Blockchain to Offer Low-Cost Cross-Border Payments and High Security
SWIFT
At the start of the year 2017, Swift launched Proof-Of-concept(POC) to explore whether the Distributed ledger technology can be used by banks to improve the management of the Nostro database in real-time, lower costs, and operational risk. As a part of SWIFT’s global payments innovation (GPI) initiative, it aims to deliver a new standard in cross-border payments. 22 global banks collaborated with SWIFT’s GPI in 2017 to test PoC DLT (Blockchain) application.
WYRE
It is a cross-border payments organization based in San Francisco that professes itself as the fastest international money transfer platform in the industry. The platform helps businesses to do cross-border payments efficiently by offering faster and cost-effective services.
RIPPLE
This is a Blockchain-enabled platform that offers financial settlement solutions across borders, which enables banks to do transactions directly with each other and lower the costs of settlements. Ripple is constantly diversifying its services in the banking sector. For instance, at the end of June, Thailand’s Siam Commercial Bank and Japan’s SBI Remit collaborated to launch the first blockchain-enabled payment service using Ripple’s blockchain.
