Cross-border payment or remittance, which is an important aspect of the banking sector, is on the cusp of transformation. The traditional cross-border payment system is plagued with multiple issues including a high number of intermediaries, exorbitant transaction fees, and lack of transparency. Apart from the increase in the processing fees, each of these intermediaries results in a surge in the number of failure points, and an increased risk of fraudulence along the payment conduit. What’s more annoying is the slow functioning of the international payments messaging network i.e. SWIFT making it extremely prone to the security breach.
This calls for the need for a robust system that can do away with the inefficiencies of the as-in process or legacy systems that are plagued with several drawbacks. Blockchain – a universal ledger has been resonating with the banking and finance sector for quite some time now. This distributed ledger system is accessible to every player in the network so that each one of them will have a complete copy of the database and any change to the same will have to be duly verified by other participants. This means that the consensus of participants is required for the state of the ledger to be valid.
With such a system in place, banks can ensure hassle-free transfer including cross-border payment due to the absence of intermediaries and corresponding banks.
Why Should You Leverage Blockchain for Cross-border Payment?
Listed below are some of the significant benefits of leveraging Blockchain-enabled payment for cross-border payment:
Removes Intermediaries: Leveraging a Blockchain-powered solution can help in doing away with the intermediaries, middlemen, central agency from the payments processing. Consequently, the transaction happens between parties that have entered into a bilateral agreement thereby ensuring trust.
Reduced Cost: Since the Blockchain platform does away with the need for intermediaries that add to the cost of processing of payments. As a result, the cost is reduced significantly.
Reduced Turnaround Time: With a Blockchain for banks solution in place, the need for central agencies and movement of messages is done away with. Consequently, the turnaround time for settlement is reduced significantly as cross-border payments made using middlemen usually require 2-5 business days to complete.
Transparency is ensured: Blockchain being a distributed ledger has multiple nodes that maintain the copy of the balances just the way they are maintained in the settlement accounts of other banks. Consequently, the balances are duly maintained.
Security Ensured: Since the transaction details are hashed and encrypted, data modification or counterfeiting isn’t possible. Since Blockchain is a decentralized platform that is distributed across peer-to-peer networks, the entire chain is restructured and synched across numerous places at the same time. This means that there isn’t a single point of failure in Blockchain and thus cannot be altered from a single node or computer.
The advent of Blockchain in Trade Finance especially in the cross-border payment space has opened up new avenues for customers, as well as the banks that are proactively looking to adopt this innovative technology. Banks and financial institutions that adopt this technology will not just be able to tap into unexplored markets and improve their bottom line by reducing operational costs and inefficiency that are associated with the traditional payment system.