The global economy keeps on changing, to enfold transformative customer technologies. Along with this, cross-border payments and remittances also keep on growing. Traditional methods such as banks and money-transferring services like Western Union have become a go-to solution for transferring money across the border for many years. Meanwhile, these approaches can be time-consuming, expensive, and not accessible to everyone at all times.
Fortunately, Blockchain is offering an innovative and new option for these solutions. In this article, we’ll come to know how blockchain is transforming the cross-border payment and remittance landscape.
How Do Traditional Cross-Border Payments Work?
Traditional international transactions are handled by several global messaging systems and it further links with the banking networks. The entire transaction is done by remittance. A remittance transfer is a cross-border monetary transaction by an organization that affiliates with - credit unions, banks, or financial service institutions.
A remittance transfer majorly takes low transaction fee than a bank transfer. In conventional cross-border payments, the ledger is not the same for the sender and receiver. Hence, incorporating security is important for the entire settlement process. A major example of a remittance transfer channel is Society for Worldwide Interbank Financial Telecom (SWIFT).
By applying a coded message system, the SWIFT redirects the transaction. Individuals or Businesses need to sign-up with the payment service provider in order to receive international payment. This process acts as a gateway for payment.
While the conventional system frequently fails in terms of traceability. Since the transaction process takes place with the help of intermediary bans results in expensive and time-consuming. Moreover, the trade variation between countries complicates the procedure. Certain governments impose a number of legal constraints. Fees or taxes might take the form of customs duty or value-added tax, which differ by country.
Why Opt For Blockchain for Cross-border Payments?
Remittances are one of the most promising applications of cryptocurrency. Conventional remittance services are slow and expensive, with hefty transaction fees with long processing times. Moreover, conventional remittance services are not accessible to people in rural or less-income areas.
In addition to remittances, blockchain can also be used for cross-border payments. Conventional cross-border payment methods are mostly expensive and slow, with hefty transaction fees and lengthy processing times. On the other hand, Blockchain can permit a cheaper, faster, and more efficient alternative.
Cross-border cryptocurrency payments are rather simple. If you live in Spain and want to send money to a friend in Australia, you must first locate an 'on-ramp' service provider. There are several such service providers, and their goal is to exchange your fiat dollars for an equivalent quantity of cryptocurrency. This transaction can be completed with a credit card or a bank transfer. This cryptocurrency may then be kept safe in a crypto wallet. Again, there are various wallets to pick from, and creating an account is fairly simple.
The next step would be to acquire your friend's wallet address. Once you have this address, simply transfer the needed amount, and your friend should get the cryptocurrency in no time. They can then transfer the cryptocurrency into fiat cash, completing the transaction. Every transaction detail will be stored in the blockchain which allows a faster, more efficient, and inexpensive than the traditional crypto payment method.
Cons Of Traditional Remittance
Remittances are an important income source for most of the families all over the world providing financial security for most of the people and access to basic needs. Similar to other services, international remittances have migrated from conventional channels to digital. Some of the drawbacks of conventional remittances are as follows:
- The transfer agency will charge a high exchange rate, therefore the overall transfer cost is higher.
- The bank-to-bank transfer is very slow which means it takes 5 business days to release the sender's funds to the customer.
- There is a possibility of remittance services are not available in all countries or that their availability is restricted in particular locations.
- The remittance services will work with limited access within the specified time. The person needs to travel to the location and have to wait for their turn. Similarly, the receiver has to wait for their turn to get their money.
These are the major drawbacks of conventional international remittance. In order to overcome these kinds of issues, remittances are changing to digital.
The biggest issue for most individuals when it comes to digital and online money transfers via websites, applications, systems, or platforms is security. While banks are trusted because they are deemed "too big to fail," they are becoming less competitive.
Digital remittance services have shown to be just as safe as bank transfers, just considerably faster, cheaper, and more convenient. As a result, digital remittances will continue to be a popular means of sending money in the majority of nations.
Moreover, Blockchain and cryptocurrency are ruling the digital world recently and it definitely overcomes the drawbacks of traditional remittances. Recently, IBM has introduced Blockchain World Wire, a real-time worldwide payment network that works on DLT (Distributed Ledger Technology) for financial organizations. This network permits a new way for cross-border payment and international settlement, which has the ability to exchange funds for more than 50 countries and is supported by 47 digital coins backed by fiat currencies.
Today, sending money across borders necessitates a number of middlemen for both clearing and settlement, each of which adds time and expense to the process. With IBM Blockchain World-Wire entire funds can now be transferred at a fraction of the cost and time of traditional correspondent banking.
Advantages of cryptocurrencies in cross-border payment & remittances
Using cryptocurrency for remittances and cross-border payments presents several advantages compared to conventional approaches. Firstly, it surpasses traditional methods in terms of speed and efficiency. Transactions can be finalized within minutes or seconds, and fees are frequently lower compared to charges imposed by banks and money transfer services.
Secondly, cryptocurrency provides enhanced accessibility. Traditional methods often pose restrictions for individuals lacking bank accounts or proper identification documents. Conversely, cryptocurrency can be accessed by anyone with an internet connection and a smartphone.
Thirdly, cryptocurrency ensures heightened security. Transactions are encrypted and decentralized, rendering them considerably more challenging to hack or manipulate. Consequently, this provides superior protection against fraudulent activities and other illegal practices.
Conclusion
Although it is unclear if cryptocurrencies will ultimately replace traditional remittance and cross-border payment methods, their potential to upend the current system cannot be discounted, and in the years to come, we are sure to witness more innovation and progress in this area. As more companies and institutions are being adopted and attracted by cryptocurrency and blockchain, we are top-notch in developing a remittance and cross-border payment platform based on Blockchain similar to IBM. This helps the organization to transfer a huge amount internationally assisting with blockchain in a fraction of a second.
We, Clarisco - A leading blockchain development company that enhances your uniqueness in the market. In addition to that, we are also well-versed in cryptocurrency development services, crypto exchange platforms, and other related services. Experience your progress by partnering with us and relishing the benefits.
