With a market projection of $290 trillion by 2030, cross-border payments are the backbone of global commerce. Despite their critical importance, however, these transactions are frequently riddled with friction. According to a recent PYMNTS Intelligence survey, the failure rate for cross-border payments approaches 11%, accounting for $3.8 billion in lost sales in 2023 alone. Traditionally facilitated by financial institutions (FIs) through a complicated network of correspondent banks and clearinghouses, cross-border payments currently suffer from long processing times, high fees and a lack of transparency.
Blockchain could significantly increase cross-border payments’ speed and reduce fees by removing intermediaries, while its ledger technology ensures transparency with verifiable records. Blockchain’s high throughput, low fees and 24-hour availability could remove much of the friction of cross-border transactions, making each one as easy as sending a Venmo payment.
Blockchain payment adoption nevertheless has faced challenges. A 2024 consumer sentiment survey revealed that 44% of non-owners said they would never purchase blockchain-based currencies, with 40% naming unstable value as their greatest concern. These concerns have recently been mitigated with the growth of stablecoins that are pegged 1:1 with the United States dollar (USD).
Crucially, moreover, what once drew institutional skepticism has matured into a technically sound, credible solution to the shortcomings of traditional payment rails, with new USD-denominated assets allaying any worries about cryptocurrency fluctuations. Leading global financial players are now pioneering blockchain-based payment initiatives that are laying the groundwork for a new era in the digital-first global economy. The question is no longer whether blockchain can turbocharge cross-border payments but instead how quickly FIs and central banks can integrate the technology into their financial ecosystems.
Frustration Station: The Hurdles of Traditional Rails
High fees, slow settlement times and a lack of transparency on traditional payment rails are crippling cross-border commerce, costing businesses that depend on international sales time, money and trust.
Intermediaries add layers of friction to cross-border payments.
Traditional payment rails have long made cross-border payments a minefield of friction and frustration. Intermediary networks, diverse regulatory regimes and currency-exchange volatility are the omnipresent middlemen hampering the seamless flow of transnational commerce. Consumer cross-border payments of as little as $200 are subject to bank processing fees averaging more than 11%. Add in the rampant issues of fraud and a lack of transparency throughout the process, and the result is the payments equivalent of old steam locomotives operating in the age of bullet trains.
B2B cross-border payments take a bite out of businesses’ profits.
Traditional payment rails are a particular problem for business-to-business (B2B) cross-border payments. A fee structure that siphons an average 1.5% from these transactions along with processing timelines that can drag on for weeks are thorns in the side of international commerce. According to recent PYMNTS Intelligence research, nearly half of Citibank corporate clients see high cost as a top pain point in making cross-border payments, and 59% say the same about slow speed. In a digital age that waits for no one, businesses can no longer afford the sluggish and costly burden of legacy cross-border payment systems.
Why do cross border payments fail so often?
Another issue is the black box presented by traditional rails when it comes to understanding cross-border payments’ high failure rate. In 2023, 82% of eCommerce firms in the United States were unable to pinpoint why payments failed, accounting for an estimated $3.8 billion in lost sales. More than two-thirds of merchants said that regaining customer trust after a failed payment was virtually impossible. This means that cross-border payments’ average failure rate of nearly 11% is jeopardizing the viability of the more than one-third of merchants that rely heavily on international sales.
The Blockchain Alternative for Payments Across Borders
By eliminating intermediaries and providing verifiable records via distributed ledger technology, blockchain-based payments offer a leaner, more efficient and more transparent cross-border payments solution.
Blockchain streamlines cross-border payments.
80%
Estimated potential cost savings from using permissioned DeFi in cross-border payments
Blockchain is an example of a distributed ledger technology (DLT), a secure means of conducting, recording and storing transfers of digital assets that obviates the need for…
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