Cross border payment is on the rise, and it’s happening for a few reasons. First, more and more people who didn’t have access to banking services before are now able to use modern financial tools. Second, manufacturers expanding their supply chains across borders which imply they will need to send money to new countries, sometimes to several new countries at once. lastly, International trade and e-commerce, and migrants sending money via international remittances.

But here’s the thing: while sending money can be instant within your own country, doing the same thing across borders is a whole different story. Think about it – there are 195 countries out there, each with its own way of handling payments, rules, and technology levels. It’s a lot to deal with.

But this complexity also means there’s room for improvement. International payments are a big part of how the world economy works, and making them easier could help boost trade and make everyone better off.

Luckily, there are new technologies stepping up to the plate to tackle this challenge. From real-time payment systems to things like blockchain – a fancy term for a type of digital ledger – there are lots of ideas out there to make international payments smoother and quicker.

Understanding how these technologies fit into the current system is key to making them work for everyone. By finding ways to make cross-border payments simpler and more efficient, we can help businesses grow, support global trade, and make life a little easier for people all over the world.

Different Ways cross-border payments are carried out

• SWIFT (Society for Worldwide Interbank Financial Telecommunication) is the go-to method for handling cross-border payments. With over 11,000 member institutions, it’s the backbone for moving money globally. These institutions include banks, brokerages, trading houses, and many more financial organizations that need to transfer money across borders. Together, they send around 44.8 million payment messages every day using the SWIFT network.
• Apart from SWIFT, there are other banking networks like Global ACH and SEPA that handle international transfers. These networks use different payment systems like EFT, BACS, and BECS to move money between US and foreign accounts, or within Europe. Domestic networks, such as Fedwire in the US or BACS in the UK, can also team up to process international payments.
• Card networks like Visa, Mastercard, and Amex are also popular for cross-border transactions. They’re convenient, secure, and widely accepted. Businesses often use them to process payments from customers in other countries, especially as more commerce moves online. However, card transactions may come with currency conversion fees and other charges, and they can be slow, especially if they rely on banking networks like SWIFT for money movement.

In recent developments, countries like India and Singapore have linked their digital payment systems to enable instant and low-cost fund transfers. This means customers from certain banks can benefit from quick and affordable cross-border transactions.

Overall, each of these networks has its pros and cons, and the choice depends on factors like speed, cost, and convenience for both businesses and individuals.

Challenges facing cross-border payments

International money transfers are crucial for facilitating global trade, supporting personal finances, and fostering economic development worldwide. However, navigating the complexities of cross-border payments can often be challenging due to various factors, including:

Currency Conversion: When conducting cross-border transactions, currencies often need to be converted from one denomination to another. Fluctuating exchange rates and fees associated with currency conversion can impact the final amount received by the payee.

Regulatory Compliance: Cross-border payments are subject to regulatory frameworks and compliance requirements imposed by both sending and receiving countries. These regulations may vary significantly across jurisdictions and can involve stringent documentation and reporting obligations.

Transaction Fees: Traditional banking systems and payment processors typically charge fees for processing cross-border transactions. These fees can vary based on factors such as transaction amount, currency exchange rates, and the chosen payment method.

Time Delays: Cross-border payments may experience delays due to factors such as time zone differences, intermediary banks, and processing times associated with international transfers. These delays can affect the speed at which funds are received by the intended recipient.

Security Concerns: Ensuring the security of cross-border transactions is paramount, as they involve the transfer of sensitive financial information across international borders. Risks such as fraud, identity theft, and cyberattacks pose significant challenges to the safety and integrity of cross-border payments.

Can Blockchain be used for Cross Border Payment?

Blockchain technology in cross-border payments enables faster payment solutions for business-to-business and person-to-person transactions across international borders. Blockchain-based cross-border payments aim to eliminate intermediaries, reduce costs, and increase the speed and security of financial transactions.

Blockchain-based cross-border payments offer several advantages over traditional payment methods, including faster settlement times, access to newer markets, lower costs, increased security, and greater transparency.

Various categories of cross-border payments are facilitated through stablecoins and cryptocurrencies, as well as via blockchain-based payment rails for business-to-business and person-to-person transactions across international borders.

The benefits of blockchain-based cross-border payments over conventional transnational payments and settlements are driven by public-private cryptography, data hashing, multi-party authorization, and fraud detection smart-contract enablers that provide security in cross-border transactions. Leading providers of blockchain cross-border payments include BVNK’s Global Settlement Network and Ripple/XRP.

Stellar as case study for Cross Border Payment?

Stellar offers a seamless solution for global payments by leveraging blockchain technology and collaborating with local partners to facilitate easy access to various currencies worldwide. Similar to SWIFT, the Stellar network operates on a standardized protocol that ensures consistent communication among all participants.

Here’s how it works: When a business initiates a payment transaction using Stellar, our local partners accept traditional currency from the business and seamlessly convert it to the desired destination currency. This conversion and delivery process occurs in a single pathway, eliminating the need for multiple intermediaries and complex currency conversion procedures.

The beauty of Stellar lies in its ability to allow service providers and buyers to transact directly in their respective local currencies, without the involvement of intermediary banks. This streamlined approach replaces the traditional international wire transfer and currency conversion processes, making cross-border transactions faster, more cost-effective, and less reliant on centralized institutions.

Bitpowr supports Stellar Trustline assets by ensuring that all tokens interacted with or transacted are from reputable anchors. We’ve also simplified the process for businesses to integrate their custom Stellar assets with us, facilitating cross-border transactions by connecting them with trusted anchors in their preferred local currencies.