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Capturing Crypto’s Product-Market Fit in Cross-border Payments
In a landscape defined by an unprecedented landscape scanning and global connectivity, cross-border payments remain a paradox.
This is because, despite the size of the total addressable market — which is expected to reach an astonishing 290 billion by 2030 — cross-border payments are rife with inefficiencies, high fees, and delayed transactions. A situation almost entirely due to the ongoing limitations of traditional methods and legacy infrastructure.
However, getting cross-border payments right is increasingly critical for companies looking to expand internationally and capture growth in new markets. That’s why companies are starting to adopt alternative cross-border money movement vehicles, including blockchain-based solutions that offer streamlined cross-border flows while freeing up capital previously tied up in correspondent accounts in multiple countries.
After all, as long as companies are being charged foreign exchange (FX) fees, transaction and correspondent banking fees, compliance fees and remittance fees, tariffs and taxes, all while their money moves at a snail’s pace, there is a attractive opportunity to reduce payment costs while providing a better user experience.
And with the news that State Streetthe largest custodian bank in the world, is rebuilding its digital asset team just half a year later dismissing staffoptimism around crypto product-market fit in the cross-border context it is becoming more difficult for companies looking for an operational advantage to amortize.
Read more: Capturing the $250 trillion cross-border payments opportunity
Eliminating friction from cross-border B2B payments
Cross-border payments inherently have more points of failure compared to their national counterparts, something particularly true for B2B payments. Compliance is a ever-present questionwith local Anti-Money Laundering (AML), Know Your Customer (KYC) policies and sanctions checks that need to be addressed for each individual region – and there are over 19,000 tax jurisdictions worldwide.
According to recent research from PYMNTS Intelligence, the failure rate for cross-border payments approaches 11%, representing US$3.8 billion in lost sales in 2023 alone.
Delays and the threat of fraud also create bottlenecks, while foreign exchange (FX) rates and a long list of fees raise their own hurdles. According to separate research from PYMNTS Intelligence, nearly half of Citibank corporate customers see high cost as one of the main problems when making international payments, and 59% say the same about slow speed.
“This central problem is how long does it take to move money across borders… you are being charged high fees to move money across borders and you also cannot track these payments and know that they have arrived for sure,” Brooks EntwistleSenior Vice President of Global Customer Success and Managing Director of Crypto Enterprise Solutions Company Curling, said PYMNTS. “As these companies grow, there is a need to actually move value faster and in more places.”
In this context, blockchain-based cross-border solutions, particularly stablecoins, are increasingly being adopted by companies looking to find a better way to transact and expand internationally.
O Solana processed network US$1.4 trillion in stable currency cross-border payments just last March – a testament technology scalability.
See too: Interoperability and transparency are key challenges as cross-border payments modernize
Assessing the future of international payments
As Jim ColassanoSenior Vice President of RTP Product Development at The Clearing House (TCH), told PYMNTS, “instant, cross-border payments are the sacred chalice of payments.”
And new PYMNTS Intelligence finds that when it comes to cross-border payments, blockchain solutions could offer advantages compared to traditional systems. That’s because blockchain’s high throughput, low fees, and 24-hour availability could eliminate much of the friction from international transactions, making each one as easy as sending a Venmo payment.
Despite the promise, the path to widespread adoption of cryptocurrencies for cross-border payments is not without obstacles. Regulatory frameworks around cryptocurrencies vary significantly between countries, creating uncertainty and potential legal challenges. Central banks and financial regulators are also concerned about the potential for cryptocurrencies to facilitate money laundering and other illicit activities.
But PYMNTS Intelligence finds there are some Best Practices for companies looking to leverage blockchain to complement their cross-border payment mechanisms.
This includes partnering with a FinTech capable of simplifying cross-border payment processing and facilitating seamless conversion from digital to fiat currency, ensuring a streamlined cross-border payments experience; incorporation of stablecoins into payment systems; implementing permissioned, business-friendly DeFi solutions that automate and secure B2B transactions through smart contracts; and, of course, educating business customers and banks about the benefits of blockchain-based B2B payments.
After all, frictions in the cross-border landscape can be addressed – but they don’t have to be inevitable.
See more at: B2B, B2B Payments, Blockchain, blockchain payments, commercial payments, conformity, cross-border payments, cryptography, Crypto Payments, cryptocurrency, digital transformation, faster payments, Global Payments, News, Payment methods, payment innovation, PYMNTS News, regulations