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Capturing Crypto’s Product-Market Fit Within Cross-Border Payments

cryptocurrency, cross-border payments, blockchain payments

In a landscape defined by unprecedented digitization and global connectivity, cross-border payments remain a paradox.

That’s because, despite the size of the total addressable market — which is projected to reach a staggering 290 trillion by 2030 — cross-border payments are fraught with inefficiencies, high fees and delayed transactions. A situation almost entirely due to the ongoing limitations of traditional methods and legacy infrastructure.

Yet getting cross-border payments right is of increasingly critical importance for businesses looking to expand internationally and capture growth in new markets. That’s why enterprises are starting to warm up to alternative cross-border money movement vehicles, including blockchain-based solutions that offer streamlined cross-border flows while freeing up capital previously trapped in correspondent accounts across multiple countries.

After all, as long as businesses are being charged foreign exchange (FX) fees, transaction and correspondent bank fees, compliance fees, and shipping, tariff, and tax fees, all while their money moves at a snail’s pace, there exists an attractive opportunity to bring payment costs down while providing a better user experience.

And with the news that State Street, the largest custodian bank in the world, is rebuilding its digital assets team barely half a year after letting staff go, optimism around crypto’s product-market fit within cross-border is becoming harder for firms seeking an operational edge to write off.

Read moreCapturing the $250 Trillion Cross-Border Payments Opportunity

Taking Friction Out of Cross-Border B2B Payments

Cross-border payments inherently have more points of failure compared to their domestic counterparts, something particularly true for B2B payments. Compliance is an ever-present issue, with local anti-money laundering (AML), know your customer (KYC) policies and sanctions screenings needing to be addressed for each individual region — and there are over 19,000 tax jurisdictions worldwide.

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.

Lag times and the threat of fraud also create bottlenecks, while foreign exchange (FX) rates and a laundry list of fees raise their own obstacles. According to separate 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.

“This core problem is how long it takes to move money across borders … you’re being charged serious rates to move money across borders, and you also have an inability to track those payments and know they’ve arrived with certainty,” Brooks Entwistle, senior vice president of global customer success and managing director at enterprise crypto solutions company Ripple, told PYMNTS. “As these businesses grow, it comes with the need to really move value faster, and in more places.”

Against that backdrop, blockchain-based cross-border solutions, particularly stablecoins, are being increasingly embraced by firms looking to find a better way to transact and expand internationally.

The Solana network processed $1.4 trillion in stablecoin cross-border payments this past March alone — a testament to the technology’s scalability.

See also: Interoperability and Transparency Are Key Challenges as Cross-Border Payments Modernize

Sizing Up the Future of Cross-Border Payments

As Jim Colassano, senior vice president of RTP product development at The Clearing House (TCH), told PYMNTS, “cross-border, instantaneous payments is the holy grail of payments.”

And new PYMNTS Intelligence finds that, when it comes to cross-border payments, blockchain solutions could offer advantages over traditional systems. That’s because 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.

Despite the promise, the path to widespread adoption of cryptocurrencies for cross-border payments is not without hurdles. Regulatory frameworks around cryptocurrencies vary significantly across countries, creating uncertainty and potential legal challenges. Central banks and financial regulators are also concerned about the potential for cryptocurrencies to facilitate money laundering and other illicit activities.

But PYMNTS Intelligence finds that there are a few best practices for firms looking to leverage the blockchain to supplement their cross-border payment mechanisms.

This includes partnering with a FinTech able to simplify cross-border payment processing and facilitate seamless digital-to-fiat currency conversion, ensuring a streamlined cross-border payments experience; incorporating stablecoins into payment systems; implementing business-friendly permissioned DeFi solutions that automate and secure B2B transactions through smart contracts; and of course, to educate both business customers and banks around the benefits of blockchain-based B2B payments.

After all, existing frictions across the cross-border landscape may be incumbent — but they do not have to be inevitable.