Citi Sees Blockchain at Center of Borderless Commerce Initiative

If the payments landscape had a holy grail, it would be seamless cross-border payments.

Unlike domestic payments, which are shifting toward a real-time, 24/7 model, cross-border transactions are still fraught with inefficiencies and remain a critical yet complex challenge facing businesses looking to expand and financial institutions looking to facilitate that growth.

“The reason why domestic payments are becoming real time, 24/7 is because most countries are implementing some kind of clearing system, which achieves that functionality and imposes a service level,” Tony McLaughlin, emerging payments at Citi Services, told PYMNTS. “The banks adhere to that service level, allowing real-time payments.”

“For cross-border payments, there’s no single rulebook or framework that all banks follow,” he said. “We need a way to organize the messaging and settlement between banks all over the world.”

A comparable clearing system “simply doesn’t exist” on a cross-border basis, McLaughlin said.

The fragmented nature of cross-border payments is a hurdle. With approximately 25,000 financial institutions worldwide, coordinating transactions between them is no small feat. The absence of a unified framework ultimately leaves cross-border transactions slower, more complex and less transparent than domestic ones.

Why Aren’t Cross-Border Payments Made in Real Time Yet?

Consensus is slowly but steadily building among industry experts that blockchain technology and new infrastructures could transform the future of cross-border payments.

Blockchain technology has often been heralded as the solution to cross-border payment inefficiencies, with proponents citing its ability to provide a more seamless and secure system. However, McLaughlin cautioned against the notion that blockchain is a panacea.

“There’s a thesis that blockchain is the answer to cross-border payments, but sometimes that thesis is mixed up,” he said. “Some people suggest blockchain will replace the Swift system, but that’s a misdiagnosis.”

Swift, the global messaging network used to send secure and standardized financial messages, operates quickly. The perceived slowness of cross-border payments is not a flaw of Swift’s messaging speed but rather the time it takes for banks to reconcile transactions across various regulatory and financial systems.

“Blockchain isn’t about replacing Swift but complementing it,” McLaughlin said.

At its core, blockchain is a state machine — a technology that tracks who owns what without the need for third parties, a concept that originated with bitcoin. While blockchain excels at maintaining a tamper-proof, decentralized ledger, its role in cross-border payments lies in creating a more efficient way to update the balance sheets of the various financial institutions involved in a transaction.

Rather than replacing existing messaging solutions, blockchain could act as a layer that organizes the process more effectively, McLaughlin said.

Bridging Traditional Finance and Crypto

In addition to blockchain, stablecoins — cryptocurrencies pegged to a stable asset like the U.S. dollar — are gaining prominence in discussions about cross-border payments. Within the crypto ecosystem, stablecoins offer traders a stable way to store value, and efforts are underway to bring these digital currencies into mainstream finance. The primary challenge facing broader adoption, however, is regulatory.

“The main barrier to widespread stablecoin adoption outside of the crypto ecosystem is the lack of regulatory frameworks,” McLaughlin said.

However, regulatory developments are beginning to take shape, with frameworks like the Markets in Crypto-Assets (MiCA) regulation in Europe providing a legal structure for stablecoin issuers. If stablecoins can navigate the regulatory hurdles, they could play a role in easing cross-border payments by providing a new medium of exchange that operates 24/7.

For any cross-border payment solution to work, whether it’s blockchain, stablecoins or another innovation, public-private collaboration will be essential.

The financial system is inherently a partnership between central banks (the public sector) and private financial institutions, McLaughlin said.

“When a payment is made, you’re updating the balance sheets of three parties — your bank, the recipient’s bank, and the central bank that provides the matching asset to settle the transaction,” he said.

This interplay between private and public entities ensures that the financial system remains stable and functional. As new technologies emerge, this collaboration will be crucial in ensuring that they are integrated smoothly and securely into existing infrastructures. If the regulated financial sector fails to keep up with the pace of the digital economy, unregulated services could fill the vacuum, potentially introducing new risks into the system, he said.

Cross-Border Payments in 5 Years

Looking ahead, McLaughlin said he envisions a future where blockchain plays a complementary role to existing financial messaging systems, offering a new level of coordination and efficiency. Using an analogy, he compared today’s financial transactions to organizing a dinner party via email, where multiple threads of communication make coordination difficult. By contrast, blockchain could act like a messaging app, where all parties have a shared understanding of the transaction’s status — a “common state” that allows for better orchestration of balance sheet updates.

“In five years, we might have a blockchain or state-machine capability where financial institutions involved in a transaction can look at that common state and use it as a source of truth to update their own balance sheets,” McLaughlin said. “If we can achieve that, it could unlock real-time, 24/7 cross-border payments.”

“The financial system needs to keep up with the digital economy, which is always on, scalable and becoming smarter every day,” he said. “If it doesn’t, unregulated services might fill the gap.”