Why Blockchain Holds Promise For Cross-Border Payments

The rise of the global economy and the demand for swift and secure cross-border payments is driving the development of more efficient infrastructures, and spurring financial institutions (FIs) to experiment with emerging tech.

According to the new Smarter Payments Tracker, cross-border business-to-business (B2B) payments generated approximately $125 billion in revenue last year, a figure that continues to grow as the economy becomes more global.

Traditional banking options are not up to par in today’s digital world, and FIs and FinTechs need to be ready to support their clients with quick, transparent payment methods and easy currency conversions if they want to remain competitive.

Blockchain has caught the attention of several FIs, especially for B2B and cross-border payments, even if there’s not yet consensus on how to best deploy it in real-world situations.

Blockchain has potential to securely transmit remittance data along with payments in cross-border B2B transactions, enable companies to use smart contracts to enforce business agreements in B2B trade and mitigate the risk of fraud in supply chain transactions.

Canadian payments network Interac has experimented with blockchain for consumer payments. However, Oscar Roque, AVP of innovation, research and emerging solutions at Interac, told PYMNTS in an interview that despite blockchain’s hype, its promise “is probably overstated with banking.” He added, “The hype has started to die down. We are now in the trough of disillusionment.”

Many still have hopes for blockchain, but it’s still very much a work in progress.

A call for cautious optimism hasn’t quashed many financial institutions’ enthusiasm, though. Especially since Facebook’s attention-grabbing cryptocurrency, Libra, has put the focus back on crypto and blockchain payments.

PYMNTS spoke with several founding members of Project Libra, including luxury retailer Farfetch and nonprofit organization Women’s World Banking, about the network and what it means for the future of payments.

For retail, Libra could change global eCommerce and the shopping experience. “As an early member, [Farfetch] will actively participate in the technical development of the blockchain,” said Farfetch Chief Strategy Officer Stephanie Phair. “At the same time, [we will be] able to learn from our participation and accelerate our other blockchain projects.”

These could take the form of enhancing IP protections, providing more transparent insights into product life cycles and offering international customers with personalized recommendations.

Clearly, luxury retailers have different needs than nonprofits. Tom Jones, chief operating officer at Women’s World Banking, sees Libra as potentially removing structural and cultural barriers to women’s financial inclusion. Many women in developing nations are lack basic identification tools like government-issued IDs, which makes it difficult to meet FIs’ know your customer requirements.

“Some of these partners — think of the knowledge they bring to the table and technology they already have. The ability to [work with] an association with a common focus and leverage that knowledge and technology together has the right ingredients for tremendous success,” Jones said.

Blockchain network Ripple has prominently featured in multiple partnerships as of late. Last week, the company partnered with MoneyGram to enable the money transfer firm to use digital currency. Ripple’s XRP can be used as bridge currency for banks conducting transactions across borders, rather than leaving money in foreign accounts.

Similarly, Ria Money Transfer also recently joined Ripple to speed up its cross-border payments and provide greater visibility into transfers. And Banesco Panama, a Panamanian branch of Venezuela’s largest private bank, is turning to blockchain for cross-border payments. The bank recently announced it had been testing moving international funds using Ripple.

Indian bank IndusInd and Saudi Arabian British Bank (SABB) recently teamed up to establish payment infrastructure between the two countries. The new remittance scheme will be powered by Ripple’s xRapid and xCurrent services.

Payments messaging firm SWIFT will begin allowing blockchain companies to connect into its global payments innovation (gpi) platform for cross-border transactions. According to the Smarter Payments Tracker, cross-border payments traffic handled by SWIFT gpi makes up 75 percent of the market share, and the value of funds transferred over SWIFT gpi in 2018 was $40 trillion.

FIs, FinTechs and other players are adopting or integrating advanced payment infrastructure technologies to help businesses with fast, streamlined international transactions. Players in the space are examining how to encourage the easy implementation and management of new solutions, but work remains to be done.