How to Use Blockchain for Cross-Border Payments?

As per evidence, international money transfers are both expensive and time-consuming. Typically, remittances take one to five days for international money transfers. On the other hand, tax complications, data protection issues, and compliance matters are some of the biggest challenges in making cross-border payments. But blockchain for cross-border payments offers a ray of hope in international finance. It is one of the most promising technologies, which is revolutionising cross-border payments. Using blockchain in international transactions has lowered transaction costs, enabled lightning-fast transfer times, and increased accessibility along with transparency, making global money movement easier and more efficient than ever. Therefore, this article explores how blockchain improves cross-border payments, the benefits of blockchain for cross-border payments, how blockchain compares with traditional methods of payments in general. We will delve deeper into the blockchain technology for cross-border payments to help you understand blockchain for international payments and how to use blockchain for cross-border payments.

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Figure 1: Trends in the global cost of sending $200 in remittances (Source)

What is Blockchain for Cross-Border Payments?

Blockchain payment is a digital transaction that makes use of blockchain technology. It acts as a decentralised digital ledger that records and verifies transactions on a network of computers. In the context of payments, blockchain allows secure and transparent transfer of money or assets between parties, no matter where they are situated in the world. When compared to conventional payment systems, which mainly depend on large institutions like banks, blockchain payments function autonomously, diminishing the need for intermediaries. The use of blockchain for cross-border payments ensures verified and recorded transactions of assets or money on a transparent ledger that is accessible to all network participants. This as a result improves security while reducing dependence on external entities and their associated fees.

How to Use Blockchain for International Payments?

For businesses, integrating blockchain for international payments is a strategic move that can revolutionise the way their money moves across borders. Below is a step-by-step process for using blockchain for international payments:

Select a Blockchain Platform

The first important task is to identify the right blockchain for cross-border payments. In the modern world, there are various blockchain networks available that are designed for different purposes. So, you must choose the right platform to transfer your money across borders. Like Ripple (XRP), which is specifically designed for cross-border payments and is a popular one due to its speedy transactions and low cost. However, to ensure that you are selecting the right platform consider factors such as:

Speed of transaction: Some blockchain platforms allow you to transfer money within seconds. Choosing a platform that offers speedy transactions will ensure that your funds reach their destination quickly without any hassle.

Transaction costs: There are many platforms that have low fees when compared to traditional wire transfers. Choose a platform, which is known for offering competitive and transparent pricing and has no hidden charges.

Wide Currency Support: Select the platform that supports the currency that you wish to use.

Enterprise-Grade Security: Choose a platform that’s focused on security and offers 100% guaranteed protection of your e-money, with a securely segregated advanced fraud prevention mechanism, and is known to comply with global regulatory standards. Look out for features such as AI-based transaction monitoring and KYC protocols

Set up a Digital Wallet

After you choose the platform, you have to create a digital wallet. The digital wallet will help you to store and transfer the currencies in blockchain during cross-border payments. Digital wallets usually consist of two types of accounts, namely, public address and private key. The public address is used to receive payments. The private key is used to authorise transactions. It is recommended that you choose a wallet that comes together with the blockchain platform you chose, and is completely secured.

The different types of digital wallets include:

Hot wallets
Cold wallets
Multi-signature wallets

Train Your Team

Blockchain technology for global payments can be a complicated factor to understand. To ensure that your aim of making cross-border payments with blockchain is successfully implemented, you must train your team on the basics of blockchain, to help them understand how digital wallets work and how the use of API can ensure smooth implementation and operations.

The main factors to consider in training your team to ensure the smooth use of blockchain for cross-border payments include:

Helping your team grasp the basics of blockchain.
Train them about security protocols as blockchain transactions are irreversible and your team must be well-versed in maintaining the security of the wallet, managing private keys, and avoiding phishing attacks.
Your development team must also be trained on how to integrate blockchain payment APIs within your system for seamless payment processing.

Start Processing Payment

After setting up a blockchain platform, configuring some wallets, integrating the APIs and accustoming your team, you have finally become ready to start processing payments:

Sending small test payments

If you must, share your public wallet address with your overseas clients, vendors, and partners so they can issue payments across borders easily, thanks to blockchain.
Thirdly, use the real-time tracking properties of the blockchain network you are on to track payments and make sure that your money is being sent fast and to the correct destinations.

Blockchain Benefits for Cross-Border Payments

Blockchain for cross-border payments has countless benefits, which has drastically changed the dynamics of international finance. Some of the major advantages of cross-border payments via blockchain technology are:

Meeting Customer Demands

By using blockchain technology for global payments, businesses can reach out to new markets and demographics, especially in places where traditional banking is not easily accessible. Additionally, businesses can deliver fast cross-border payments, increased transparency and greater security in e-money transfers, thereby meeting the standards of modern consumers.

Easy International Money Settlement

Banking systems like Swift can take several days to settle money internationally, especially when funds are moved in and out of emerging markets. In such situations, finance teams need to resort to pre-funding or suffer from cash flow pressures. However, by using blockchain payment solutions for international transfers, businesses can enjoy instant settlements, which can be carried out 24/7, eventually eradicating the cash flow gap between the cost of selling and revenue from sales.

Predictable

If you use blockchain technology for global payments, you need not worry about chargebacks for settlements. Settlements made using blockchain are full and final and once completed they become an immutable part of the blockchain ledger. Businesses who process lots of settlements can avoid losing large amounts in reversals and the intricate operations required to process these chargebacks. But as with all customers, blockchain payment processing also protects international buyers from domestic chargeback fraud.

Transparent

Blockchain is the digital spin that adds transparency and consistency to global payments, a spin that ensures that nothing is hidden. The blockchain ledger keeps track of every transaction you make. At any moment, anyone on the network can access this ledger to verify the status of your payment. Over time, blockchain erodes fraud and fosters greater trust in the process.

Reduced Risk of Errors

By being decentralised and not managed by any single entity, blockchain reduces the risk of an error or a loss in transactions compared with previous technologies. Because you can use smart contracts on many blockchain platforms – for instance to specify exactly what happens when you make a cross-border payment – you can automate the processes, thereby ensuring that the transactions take place as agreed.

Secure

Blockchain solutions for cross-border payments use cryptographic methods that make them secure and so reliable that it’s extremely difficult to hack or alter transactions without permission. That level of security might be especially important to a company sending or receiving payments of high value.

Cost-efficient

Blockchain for cross-border payments are also cheaper than payments through banks. It is less costly to transfer money using blockchain, as there are no intermediaries to collect transaction fees. Thus, with blockchain, the cost to convert currencies is also reduced and this is good news for businesses and individuals who want to save money while making foreign payments.

Blockchain vs Traditional Cross-Border Payments

Below is a comparison table showing the key factors differentiating blockchain for cross-border payments and traditional banking services:

Final Thoughts on Using Blockchain for Cross-Border Payments

In the realm of cross-border transactions, the blockchain payments industry has witnessed remarkable growth. In the context of cross-border payments, blockchain offers faster settlements, reduced costs, and enhanced security, showcasing the potential to revolutionise the way business processes payments and transfers funds across borders. The decentralised infrastructure of blockchain can help businesses enjoy faster settlement, lower fees, enhanced security, and greater transparency, all while meeting the growing demands of international customers and partners. Whether you are a startup business, a multinational enterprise or you are a freelancer, using blockchain for cross-border payments with an easy-to-implement and understand platform like TransFi can empower you to handle international transactions with ease, efficiency, and peace of mind.

Also Read :- What Is Algorand? Meaning, Difference From Ethereum & How Does It Work?

FAQs

Can blockchain be used for cross-border payments?

In the realm of international transactions, blocking is increasingly gaining its fame. By facilitating end-to-end trade finance, involving documentation, payment and tracking, blockchain technology is streamlining international commerce.

What is the biggest advantage of blockchain when making international payments?

Blockchain for cross-border payments offers a multitude of benefits to its users. Starting from being cost-effective when compared to traditional wire transfer to offering increased accessibility, reducing risk of errors and offering transparency, blockchain platforms can benefit your global business in various ways.

How does blockchain help remittance?

Blockchain platforms eliminate the need for intermediaries such as correspondent banks, streamlining the entire remittance process, eventually cutting costs for both senders and receivers, especially in the case of smaller amounts.