Crypto cross-border payments, explained


It’s cheaper and faster… and could also help clamp down on money laundering.

There’s a lot of excitement surrounding how crypto could transform cross-border payments as we know it — making remittances, where workers in foreign countries send funds to their loved ones back home, much less expensive.

At present, the World Bank estimates that remittances sent through fiat channels result in average fees of 6.75%. For someone on a modest income, this can take a substantial chunk out of their earnings. Although this is less than the 9.67% charged in 2009, there’s still a long way to go. In the early 2010s, the G8 and the G20 set a target of slashing remittance costs to 5% — and the United Nations’ Sustainable Development Goals also set a target of 3% by 2030.

Cryptocurrencies could help these goals be realized much faster. According to figures from Deloitte, blockchain has the potential to reduce transaction costs by 40% to 80%. But the advantages may not end here. Currently, it can take three to five business days for funds to clear through old-fashioned wire networks — not ideal for someone who needs money in a hurry. But on certain blockchains, it’s possible for payments to be confirmed in seconds.

The advantages may not end here. As Deloitte notes, blockchain transactions can be data rich — meaning that metadata can be transmitted from end to end. All of this can help clamp down on money laundering and terrorist financing, two areas of concern for regulators. Many crypto platforms have introduced Know Your Customer checks to verify users, too.

One crucial benefit that cryptocurrencies can offer is unlocking access to financial services for the unbanked. Research suggests that 80% of consumers in sub-Saharan Africa fall into this category — and worldwide, a total of 1.7 billion people don’t have a bank account. There can be a multitude of reasons for this. Financial institutions may not operate in their geographic area, these services could be too expensive, or consumers may have a lack of trust.

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