CRYPTO IN CROSS-BORDER PAYMENTS
When your company conducts business with partners located in different countries, continents, and timezones, you need to operate with efficient cross-border transactions. You also probably already found out that in such transactions, the costs are either shared between the remitter and the beneficiary or paid in full by either party. Also, due to the involvement of a large number of intermediaries, your existing interbank payment systems cannot provide cost-effective cross-border transactions. But don't despair, there is a solution in the form of cryptocurrency.?
For some years now, there has been an ongoing buzz that cryptocurrency payments are faster than traditional cross-border alternatives. The reason for this is that cryptocurrency may work well in cases where foreign markets have various restrictions and practices that prevent efficient and cost-effective cross-border flow of that country's fiat currency.We know, for example, that bitcoin is used by individuals for remittances in countries with volatile currencies or those with significant cross-border restrictions. As a result, cryptocurrency provides a relatively accessible alternative within such restrictions. It also transfers money instantly, meaning that for the first time, when the company pays out to its customer, the money is already in the customer's account.
To explain this efficient cross-border technology, this type of crypto consists of a group of authorities governing a specific network that is managed by participating countries and executed via an authority consensus with equal rights. Some dynamic decentralized identifiers, the so called DIDs, are even used as transacting addresses so that self-manageable authentication can be performed on-chain without any interaction with a trusted third party. This latter and particular approach also enables peer-to-peer transactions while protecting user privacy and ensuring transparency.
Generally speaking, the reasons to use cryptocurrency for cross-border transfers appear more obvious for states with currencies that have restrictions on moving the capital out of the country. A huge step that could eventually lead to setting a new standard was made when Canada and Singapore conducted the first successful trial of cross-border payments using cryptocurrency. Equally impressive was the news from November 2022, when France, Singapore, and Switzerland launched a joint trial of their experimental central bank digital currencies and decentralized finance (DeFi) protocols, in the first cross-regional test of its kind. According to Euronews, the first trial, called Project Mariana, explores how financial institutions could settle foreign exchange trades in financial markets using such tools, with the aim of delivering a concept by mid-2023.
High awareness and growing use of cryptocurrencies for cross-border payments amongst individual customers are also shown in a study conducted with 10.000 respondents in the United States, the United Kingdom, Mexico, and Singapore. In these four markets, the Stellar Development Foundation found that 52% of respondents see crypto as a valid alternative to sending money overseas using traditional means, and 45% have already done so. The key takeaway here is therefore - crypto is not just for speculation but has real utility for sending money to/from emerging markets and can serve as an interesting offering to your customers.?With that regard, our Bepace experts recommend evaluating two areas when using crypto in your cross-border transactions. To begin, decide whether you will use and store money in fiat or cryptocurrency.Secondly, think of the conversions you would usually need - whether it is crypto to fiat, crypto to crypto or another.
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This article should have helped you understand the benefits of using cryptocurrency for cross-border transactions. While cryptocurrency certainly speeds up these transactions and makes them more affordable for all, businesses have their own practices and need to evaluate the right strategy with trusted guidance.
The use of crypto for conducting business presents a host of opportunities and challenges. Speak to our experts to help you. Visit www.bepace.com or contact [email protected].
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