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 streamline the process.

Many blockchain startups claim that the technology can confirm payments faster by using peer-to-peer networks, and it 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 properly? Or is blockchain as a technology not ready yet to handle a complex task like cross-border payments?

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

Q. What ways can blockchain transform cross-border payments?

A. Sending an international payment through existing banking channels is complex. Multiple steps are involved, with several intermediaries, and prices aren’t always transparent. Blockchain streamlines the process. It’s peer-to-peer, and every transaction is stored on a distributed ledger. Since transactions are validated by the network, no more middlemen are required to create trust. This reduces exorbitant fees and delays in payments: the receiver gets access to funds as soon as they’ve been transferred. Using smart contracts, cross-border payments on the blockchain also allow for split payments and separate commissions.

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 business like shipping. Smart contracts can be used to power the whole process of capturing total weight, contents, price and payment before something is shipped halfway across the world. With that smart contract, once shipment has been received, final payment can be made.

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

A. Blockchain is still in its infancy, similar to the internet in the late 90s. The most popular chains, Bitcoin and Ethereum, both still face issues with scaling and transaction fees. So, in many ways, the technology isn’t quite ready yet. Similarly, blockchain is still sufficiently technical that many merchants aren’t in a hurry to adopt — so user-friendly interfaces are a must. Finally, the fact that blockchain projects are the object of speculation makes crypto assets notoriously volatile, and companies don’t want to expose themselves to that when accepting cryptocurrency. Of course, there are projects building solutions to overcome these limitations: scaling, 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 working with a traditional bank to offer individual bank accounts. Blockchain and traditional finance will find ways to work together. As the technology begins to take off, traditional players will need the expertise of pioneers from the blockchain industry if they’re to integrate their own products and not be left behind. Likewise, blockchain fintechs will continue forming partnerships with banks to deal with 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 prevalent, I see a few digital currencies being used to power cross-border transactions globally — a small number of universal tokens, most likely stablecoins, some backed by central banks, some not. Perhaps a single standard might emerge. Other chains with slower transactions or more volatile associated assets will find their use case as stores of value or objects of speculation.