Blockchain is still a relatively new technology, but it is poised to disrupt the way companies and individuals process financial transactions on a global scale. As the founder of a fintech company that deals with cross-border payments, blockchain has been an exciting development that we believe will become integral to businesses like ours. Here’s why: Blockchain has the potential to resolve inefficiencies and provide a faster, cheaper and more secure alternative to the current system.
The Challenges Of Cross-Border Payments
Sending an international payment through established banking channels is a complex, multistep process that involves several intermediaries.
If Company A in the United States wants to pay Company B in India, Company A asks its U.S. bank to send a payment overseas. The U.S. bank partners with a correspondent bank to facilitate the transfer, and a respondent bank in India receives the funds and then transfers it to Company B’s bank account. The average for sending payments worldwide is 7%, according to the World Bank. As soon as a transaction is recorded, the receiving party has access to the payment – no middlemen, no delays, no unnecessary fees. And once a payment is entered, it can’t be reversed or changed in the ledger, fostering greater overall accountability and security.
The Benefits Of Blockchain Payments
Cross-border payments supported by blockchain provide significant advantages to businesses and consumers. Blockchain-based payments are cost-effective, almost immediate, secure and transparent. Deloitte estimates that business-to-business and person-to-person payments with blockchain result in a 40% to 80% reduction in transaction costs, and take an average of four to six seconds to finalize (compared to two to three days using the standard transfer process).
Instead of paying transfer fees to multiple parties, companies using blockchain only need to pay a single nominal fee or nothing at all.
Blockchain payments are completed in close to real time – in seconds rather than days.
Blockchain eliminates the risk of discrepancies in record keeping. As a decentralized ledger, it holds a verifiable and irreversible record of every transaction and distributes it for all authorized users to see. The ledger is maintained and updated communally by a group of connected computers, and all parties have an identical copy of the ledger. Company A in the U.S. and Company B in India see the exact same information in one place, instead of in five databases in different cities.
With blockchain, all transaction records are secured by cryptography, tied to previous transactions and distributed among participants in a ledger. To tamper with data, a hacker would have to alter all earlier transactions in the ledger – making blockchain nearly impenetrable. CIO reported that global governments, banks and other institutions have been rigorously testing blockchain solutions at scale and finding them remarkably secure.
Blockchain is the future of cross-border payments. Companies that realize its potential and begin exploring ways to incorporate it will have a distinct advantage over competitors who stick with the status quo.