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By admin
January 23, 2024
The word cross-border refers to payments across different countries. Individuals, businesses, merchants, industries, and international development organizations all depend on cross-border payments. However, the exorbitant fees and lengthy processing times associated with cross-border transactions frequently cause inconvenience. Utilizing blockchain technology for cross-border payments will boost the global economy. When it comes to international money transfers, blockchain technology is a game-changer. Banks see cross-border payments as more risky than domestic ones when they process them. Due to the number of parties involved in transferring money from one country to another, all of whom charge fees for their services, regulatory costs, and FX fees to convert one currency into another, the procedure is quite costly in order to prevent such risk and ensure smooth transactions. We will examine the current cross-border payments system and how blockchain technology is quicker and more effective in this article.
Flow diagram of Cross-Border Payment
The general concept of cross-border payments is simple. Let’s use an e-commerce business to illustrate. Set up a website with a checkout page, where you offer your customers various payment options. Customers making purchases are often able to select their preferred payment method and complete the transaction after completing some form of identity verification. In the rear, the situation is much more complicated. International payment processing typically includes currency conversion. This means merchants must manage exchange rates, taxes, foreign transaction fees, and bank accounts in each currency. In addition, interbank fees apply when consumers make payments using credit or debit cards.
Of course, you want to choose a payment method that appeals to your target market. For example, credit and debit cards for customers in North America and Latin America, and digital wallets for customers in Europe and Asia Pacific. Regardless of the payment methods set up by the merchant, they must appear in the technical connection of the payment processing gateway.
Bank transfers, credit card payments, and alternative payment methods like E-Wallet’s and mobile payments are among the most common methods of cross-border payment.
High Cost
cross-border payments are well-known for being prohibitively expensive. In addition, fees for foreign exchange (FX) conversions and regulatory costs add up.
Slow transactions
Cross-border payments made through a conventional bank transfer typically take between two and five days to process. Again, this is because a single transaction involves so many different entities. Due to the lengthy procedure involved, cross-border payments frequently experience delays.
Security issues
There is no guarantee that a bank will be able to retrieve the stolen funds in the event that a hacker is successful in stealing money from a cross-border payment pathway. These kinds of losses can be very expensive. Since each nation has its own laws, the cross-border payment system is vulnerable to hacking whenever money enters a nation with weak access controls and security measures.
Lack of transparency
Traditional cross-border payments lack complete transparency regarding fees, tracking, and currency conversion rates, which is a major drawback. Fees and transfer times are not known when a payment is made. When there are delays, it tends to be harder for finance teams to find out where payments are.
Banks and payment processors are aware of the difficulties associated with facilitating cross-border transactions and have begun to address them. Banks in India have adopted blockchain technology to help customers have better payment experiences. Take, for instance, last year. Blockchain can also help a bank’s customers use their more effective cross-border payment service and reduce their reliance on hawala brokers, whose fees can be quite high. It can also help the Indian populace become more financially literate. Due to the use of encrypted distributed ledgers that provide trusted real-time verification of transactions without the need for intermediaries like correspondent banks, the concept of Blockchain technology holds a lot of promise for the future of cross-border payments. It makes it possible to verify without relying on third parties. However, because anyone can use the technology to integrate their product to their advantage, the banking concept will not be eradicated by the technology. This technology is already being used by some banks in Japan and Korea for their payment transactions.
Working of Blockchain cross border Payment
Faster settlement
Blockchain payments are completed in close to real time – in seconds rather than days. The ability to transfer money instantaneously helps businesses be more agile and responsive, taking action on new projects or addressing customer needs without waiting for funding to come through.
Cost-Effective
In order to complete the transaction, banks must enlist the assistance of intermediary banks. As frequently, banks don’t have a partnership with the bank in the other country. The sender and the beneficiary split the cost of the third party in between by charging a fee. The transaction fee will only apply to the blockchain network operator when cross-border payments are made using a blockchain network.
Enhanced Security
Everyone has a private key, just like in the cryptocurrency network. The key serves as a digital signature, and the system can be hacked for any reason. The signature itself will lose its validity. The blockchain is synced simultaneously, as is known. As a result, an attacker would be unable to quickly gain access to the data across multiple computers.
Transparency
Blockchain makes it less likely that record keeping will be inconsistent. It is a decentralized ledger that provides all authorized users with access to a verifiable and irreversible record of every transaction. Financial records are not maintained by a computer or central institution. The ledger is maintained and updated collectively by a collection of linked computers, and each participant has an identical copy.
Due to various flaws in old techniques, the use of blockchain in cross-border payments is growing by the day. The use of blockchain as an intermediate technology for cross-border payments is a big advantage. Combining blockchain technology with cross-border payments benefits both the sender and the recipient. As the globe becomes more globalized, the demand for a reliable cross-border transaction system grows. And cryptocurrencies appear to be the ideal answer. While banks can begin to cut transaction prices in order to compete with crypto transaction systems, the immutability and security provided by blockchain are superior to traditional institutions. Blockchain technology will have a significant influence on the structure of cross-border payments. As there is a gradual awakening, it might be a technical breakthrough.
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