Can blockchain transform cross-border payments?

Cross-border payments are fraught with difficulties. From long paper trails to complicated contracts, even large financial institutions can struggle with them. Blockchain, however, has emerged as a possible contender to simplify the process.

Many blockchain startups claim that the technology can confirm payments faster using peer-to-peer networks and can provide an immutable secure database to prevent tampering or theft. But of course this raises a question: Can blockchain realistically transform cross-border payments or is it too complex to implement correctly? Or is blockchain as a technology not yet ready to run a complex business like cross-border payments?

Mobile Payments Today spoke to Nash.io executive sales leader Kellogg Fairbank to learn more about blockchain and whether it’s the right choice for cross-border payments.

Q. In what ways can blockchain transform cross-border payments?

A. Sending an international payment through existing banking channels is complex. Multiple steps are involved, with different intermediaries, and prices are not always transparent. Blockchain simplifies the process. It is peer-to-peer and each transaction is stored in a distributed ledger. Since the transactions are validated by the network, no other intermediaries are needed to build trust. This reduces exorbitant fees and late payments – the recipient has access to the funds as soon as they have been transferred. Using smart contracts, cross-border payments on the blockchain also allow for split payments and separate fees.

Q.How does blockchain power smart contracts?

A.The beauty of a smart contract is that it is an agreement between two parties in the form of computer code, stored on a public blockchain and cannot be modified or changed. Think of an old-school activity like shipping. Smart contracts can be used to power the entire process of acquiring total weight, content, price, and payment before something is shipped to the other side of the world. With this smart contract, once the shipment is received, the final payment can be made.

Q.What has held back the adoption of the blockchain in this space?

A. Blockchain is still in its infancy, similar to the internet in the late 1990s. The most popular chains, Bitcoin and Ethereum, still face problems with scaling and transaction fees. So, in many ways, the technology isn’t ready yet. Likewise, blockchain is still technical enough that many merchants are in no rush to adopt, so user-friendly interfaces are a must. Finally, the fact that blockchain projects are the subject of speculation makes cryptocurrencies notoriously volatile, and companies don’t want to expose themselves to this when they accept cryptocurrency. Of course, there are projects that create solutions to overcome these limitations: scalability, accessibility and market risk.

Q. Do you think big banks or smaller fintechs will lead the way with blockchain?

A. I think something similar will happen to the way traditional fintech companies work with big banks today. For example, think of a peer-to-peer app that works with a traditional bank to offer individual bank accounts. Blockchain and traditional finance will find ways to work together. As the technology starts to take off, traditional gamers will need the expertise of the pioneers of the blockchain industry if they want to integrate their products and not be left behind. Likewise, blockchain fintechs will continue to partner with banks to manage cash / crypto interfaces.

Q.What do you see as the future of blockchain when it comes to cross-border payments?

A. As digital currencies become more widespread, I see some digital currencies being used to power cross-border transactions globally: a small number of universal tokens, most likely stablecoins, some supported by central banks, some not. Perhaps a single standard could emerge. Other chains with slower transactions or more volatile associated assets will find their use case as stores of value or objects of speculation.