- Blockchain technologies connect global financial systems so that they are easily interoperable, efficient, affordable and accessible.
- This can reduce the cost and time of cross-border payments.
- Confidence in blockchain technologies is growing as more governments and companies invest in these areas.
What’s wrong with cross-border payments today?
It’s no secret that the traditional rail cross-border payments landscape is fraught with fees, hurdles and delays. Individual senders incur oversized fees for the billions of dollars that come in in personal transfers each year. Global companies choose between paying FX costs or passing those costs on to their clients. Everyone involved has to wait days or weeks to complete the transactions. Conclusion: Sending money over traditional rails is not a limitless experience.
Part of the problem is that systems are not interoperable. In order to send money to different corners of the world without blockchain, an entire patchwork quilt has been arbitrarily put together over the decades to achieve a certain degree of financial interoperability between financial institutions, correspondent banks and money transfer companies along the value chain. The connection of these different systems, especially in underserved markets where the local currency is not traded globally, has created frictional losses that lead to long delays and high fees at every link in the chain.
Only last year did the G20 make improving cross-border payments a priority, citing the Services A faster, cheaper, and more transparent system would help citizens and economies around the world, and increasingly global decision-makers are realizing that blockchain technology can solve the problem of outdated financial infrastructure.
But the solution is not just in sight – the solution is there. Blockchain technology keeps its promise today with seamless cross-border payments.
Blockchain technology shows that we can interconnect the financial infrastructure so that systems and forms of value can interact with each other regardless of their location in the world.
Stellar, a global, public blockchain built on interoperability and the promotion of financial access and integration, has a network of more than 20 anchors around the world that are integral to the interconnection of global financial systems. These anchors are regulated financial institutions, money service providers, or fintech companies that issue 1: 1 supported fiat tokens (also known as stablecoins) and / or provide a fiat on / off ramp. The aim is to open markets for new remittance and payment corridors, for example between Europe and Nigeria, Africa largest remittance market south of the Sahara.
For example, Cowrie Integrated Systems, a financial technology company headquartered in the UK with offices in Nigeria, provides value-added services over electronic payment networks. In light of recent guidelines from the Central Bank of Nigeria, Cowrie has developed a payment channel to use USDC, one of the world’s leading digital dollar stablecoins, as a bridge currency to help businesses ease the friction of sending payments to and from Europe.
In collaboration with Tempo, a France-based electronic payment institution, and the issuer of EURT, a euro stablecoin that is also tied 1: 1 to fiat reserves, they are developing a bi-directional channel through which customers can redeem and trade these tokens immediately can. This resulted in cost and time savings and demonstrated the ability to interconnect global financial systems in such a way that they are easily interoperable, efficient, affordable, and most importantly, accessible.
Openness, innovation and interoperability
Once we realize that the blockchain future we have all dreamed of is actually here, we must now ask ourselves whether we are creating long-term solutions
Open networks enable innovations by many and not by a few. Open networks ensure that everyone can build on the technology, improve and challenge it, and get the market to think about the next idea. Open networks promise interoperability and enable continuous brainstorming and further development. If we started building this technology in a silo on closed networks that cannot work together, we would risk putting ourselves back where we started. By working openly together to connect traditional financial channels with digital ones, we can leverage the advantages and overcome common challenges.
Blockchain technology can be used for the benefit of consumers without compromising control, accountability or regulation.
– Denelle Dixon
Make blockchain mainstream
Trust in this technology, especially for digital currencies, is growing across the board. Governments are speeding up theirs job on digital currencies of the central bank. Build and Invest Businesses, surveying the vast majority of global executives by Deloitte Last year they said that digital assets will be important to their industry in the next three years.
However, the benefits of innovation, particularly in the financial sector, cannot be achieved at the expense of additional risk to consumers. Central banks and regulators with a duty to protect consumers design and enforce regulations that are guided by this heavy responsibility. As the example of Tempo-Cowrie shows, when properly deployed, blockchain technology can be used for the benefit of consumers without compromising control, accountability or regulation.
It is all the more important for us to show stakeholders the difference this technology can make for consumers, citizens and businesses in order to stimulate the local and national economy – and how the technology can be subject to regulatory oversight. For this reason, it is vital for the private sector to work with governments to ensure that new regulations balance the need for new and improved financial lines with the need to protect themselves from innovations that empower illegal actors. The desire to get this right is shared by everyone involved, and by working together we will achieve that balance.
Blockchain is real and actionable today, and ready to tackle not only cross-border payments, but many of the most meaningful and impactful financial use cases for citizens, consumers, governments and businesses. Now, with a concerted public-private partnership, we can make it mainstream.