Evolution of Cross Border Payments

Since the beginning of civilizations, people have traded with one another for goods and services. Initially, barter system was used in trade, which involved trading one item for another. This often created imbalance in trade due to a difference in wants, which led to the invention of money. However, as society evolved, borders came into being and different currencies emerged, cross-border trading often posed a problem, due to the difference in money value.  Humans, in their need for consumption, has since, formulated the trading system according to their convenience.

Current scenario of cross border payment landscape

Current scenario of cross border payment landscape

Formally, cross-border payments are payments in which the merchants country locations is different from the country of the buyer. A Cross-Border Payment is often incurred in the form of domestic currency, where a convenience fee is involved. Both the merchant and buyer are impacted in terms of cost perspective in cross-border payments.

Now, coming to the modernization of this payment structure, international payment has come to become the torchbearer of global trade and business. International Payment sometimes takes days, often weeks to be transferred into the recipient’s account, which often comes at a disadvantage to the traders. The transaction fee is also erratic which adds poor value to the consumer’s demand chain. Thus, irrespective of the fact that international payments are among the few profitable businesses for the banks, traders and companies have no option, but to look for different payment options for their trade.

Society for Worldwide Interbank Financial Telecommunication(SWIFT), founded in 1973, has been used by financial institutions worldwide to send and receive financial information in a reliable and secure environment. SWIFT, however, is unable to facilitate funds transfer, only allowing payment orders that can be settled by correspondent accounts of the institutions. But. recently SWIFT has been used for political benefits, thereby weakening its neutral standing. Apart from this, the ability of SWIFT for providing banking security has been questioned, after it was hacked twice. Thus, the importance for the emergence of the second type of payment system has been brought into the light.

With Cross-Border Payments accounting for about 40% of the global payment transaction, it has been predicted that the overall value of the cross-border payments, is expected to rise by almost 5%, owing to C2B, B2C, and corporate payments. Digitization, in these turmoil situations, plays a significant role in how consumers and enterprises conduct business, as well has handled their transactions.

In order to rise above the problem of financial weakness, Banks and other financial institutions have been adopting the Blockchain technology for their international payments. Blockchains offer a low cost, high security, reliable payment structure. Blockchain, being tamper-proof, also offers a solution against the fraud system that is often associated with the cross order payments, where both parties have access to all information. With the increase in trust over bitcoin transactions, many startups have gained venture capital for the launch of their programs that offer cross-border payment, essentially based on bitcoin transfer.  These companies involved in cross-border payments using digital platforms will be amongst the biggest beneficiaries in the upcoming years.

With global migration possible, people move to different countries for various lines of work. India, being amongst the biggest remittance receivers in the world, has been predicted to be immensely benefited by the blockchain technology. With about $62.7 billion remittances received by India for 2016, Indian banks can save about $80 million annually, using blockchain. Even though, Indian being largely dominated by the poor section of the society, devoid of new age technology, it is believed that with the help of Central Bank, a solid policy can be formulated at the advantage of all.

Indian cross border payment opportunity

Even though much of the benefits of blockchain has been harnessed for its use in cross-border payments, it can only be assumed that further innovations in blockchain will take the international payment structure to new heights.

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