It was only a matter of time before cryptocurrencies would disrupt cross-border payments. From high bank fees to incredibly slow processing times and inconsistent international regulations, it's no surprise that blockchain technologies like Bitcoin and Ethereum are filling a gap in international transactions. These technologies offer a faster, cheaper, and more efficient way to send money overseas than standard payment methods.
In this article, we look at how cryptocurrencies are improving cross-border payments and what the future holds.
Problems with conventional international remittances
One of the biggest problems with cross-border transactions is the lack of transparency. Senders don't know the total fees or when their transfer will reach the recipient. What's more, it's difficult to verify the recipient's identity without going through a costly and time-consuming process, which can be frustrating.
Traditional cross-border financial transactions also require intermediaries. Some transactions require multiple intermediaries, each of which takes a fee. This results in high transaction fees that can be burdensome, especially for small transfers.
But that's not all: when making fast international transactions, you also need to take into account different time zones and bank holidays, which can delay your transaction by hours or even days.
The benefits of cross-border payments using cryptocurrency
Cryptocurrencies offer several advantages over traditional bank transfers for international transactions.
Reduce transaction costs
Using cryptocurrencies can save up to 75% compared to the average bank transfer, as blockchain technology eliminates the network of middlemen that drive up bank fees. This keeps transaction costs much lower, allowing senders to send larger amounts to family and friends back home.
Reduce processing time
Blockchain technology allows transactions to be completed within minutes, whereas traditional bank transfers can take days to clear. It can take even longer if the payment processor can't immediately verify the identity of the receipt. For example, PayPal holds can last for 21 days or more.
Increased transparency and security
Blockchain technology enables safe and secure transactions without the need for identity verification. Everything is recorded in an immutable register, allowing both parties to track transactions in real time. This establishes trust and removes the uncertainty often associated with traditional bank payments. Businesses can prevent fraud using blockchain smart contracts.
Accessibility
Cryptocurrencies make it easy for the unbanked and underbanked to receive remittances. All you need is an internet connection and a digital wallet. This makes them an ideal solution for people in areas where banks and remittance services are unavailable. They can also provide a lifeline for people who are locked out of the banking system.
Exchange rate stability
Traditional payments almost always require currency conversion, which usually incurs additional fees. One of the best things about cryptocurrencies is that they are accepted worldwide: Bitcoin is Bitcoin, no matter where you are. Cryptocurrency exchanges also offer multiple wallets within the same platform, making it easy to receive and send different cryptocurrencies.
While you may need to transact in fiat at some point, you can sell your coins directly to other crypto users on P2P marketplaces, so there are usually no bank fees involved.
The future of cross-border trade
As cryptocurrencies gain mainstream acceptance, their impact on cross-border transactions is likely to grow. However, limited knowledge of blockchain remains a major obstacle to widespread adoption of cryptocurrencies as a primary remittance service, especially in underbanked regions. This is expected to change as more governments and crypto-related companies support education programs to improve consumer understanding of cryptocurrencies.
Although challenges remain, cryptocurrencies' near real-time speed, low cost, and security will continue to attract international traders and remittances, and as a result, we can expect more people to adopt this cost-effective method of international remittances.
