Solving Challenges of Cross-Border Payments with Blockchain| Oodles Blockchain

Posted by oodles blockchain on December 12th, 2019

Today’s global payments system is a fragmented system of siloed networks. It lacks effective inter-connectivity to fulfill customers’ demands. Considering the global outreach, high costs and inefficiencies of cross-border payments ostracize several banks, businesses, and consumers from the current system. It is a result stemming from the lack of a single, global network of cross-border payments powered with blockchain.

Challenges with Cross-Border Payments

Without direct connectivity between transacting parties in a cross-border transaction, factors like traceability, transparency, and efficiency become a black box for them. Costly fees for transaction processing from one network to others that, eventually, end users bear, limit financial providers’ market and downgrade their servicing capabilities Further, the lack of standardization across networks influences data transfer, due to which end-users hesitate to share critical information with their transactions. It is forcing businesses and consumers to move from banks to Fin-tech providers using blockchain solutions that more appropriately fulfill their demands.

Blockchain to the Rescue

Although blockchain has become a buzzword in diverse industries, only a few people understand its meaning and potential. Blockchain is a digital ledger, which stores information about transactions that have ever been made on it in an immutable way. It enables blockchain to provide features like safety, transparency, efficiency, and speed for companies and people who make regular cross-border payments. According to a Deloitte study, blockchain can enable institutions and individuals to make transactions in less than 5 seconds with reduced costs up to 40-60%.

Using blockchain for cross-border payments can make companies pay either a single fee or nothing at all. It will prove significantly efficient for international businesses that send payments over the border regularly. It was a high-level overview of how blockchain can fit into cross-border payments. Now, let’s take a deep dive to understand how blockchain provides solutions to make cross-border transactions more efficient, secure, and transparent.

Most Prevalent Pain Points in Cross-Border Payments

Transaction Speed According to McKinsey research and analysis (2015) on cross-border payments, it takes an average time of three to five business days to complete a cross-border transaction.

Transaction Cost: At each step in the process, fees accumulate, including transfers from the sender’s bank to the national and international correspondent banks and foreign exchange. For high volume cross-border payments, the charge is usually average 2% to 3%. However, it can go up to 10% where payment volumes and values are low. Moreover, it’s also not clear when institutions even charge costs to a recipient.

Transaction Opacity: It’s usually complex for participants involved in transactions to track their payments while they are in transit. It creates uncertainty about both the final payment amount and scheduled delivery. It also becomes difficult to quickly track transactions with problems, such as incorrect account numbers
How Blockchain Addresses these Pain Points

Cost-efficiency:Cross-border payments become expensive because banks often do not have direct relationships with one another in a global scenario. Then, they turn to intermediary banks to make indirect fund transfers. The intermediary bank levy a fee for this service, which it deducts from the total transfer amount. Sometimes, the remitter and the beneficiary incur this cost or either party pays the complete amount. It occurs on top of fees charged by the remitter bank or the recipient bank.

At Oodles, our blockchain experts suggest that Stellar blockchain development services can provide efficient payment solutions while eliminating the need for intermediaries. Thus and so, it reduces the fees for sending cross-border payments dramatically. The fee paid by transacting parties is then limited to charges levied by the distributed ledger technology-based solution operator.

According to reports, banks experienced 40% savings on average using these blockchain platforms like Stellar and Ripple.

Read More-  Solving Challenges of Cross-Border Payments with Blockchain

Conclusion

To conclude, sharing transaction information across involved participants in a common format can reduce data discrepancies, facilitate fast reconciliation, and optimize burdensome back-office operations.