Blockchain’s Potential To Ease X-Border Payment Pains

Over the years, the size of import and export trade between the U.S. and China has ballooned to over half a trillion dollars. In 2015 alone, the U.S. goods and services trade with China accounted for over $659 billion in value, according to the Office of the United States Trade Representative.

With the increasing trade volume between the two countries, payments have become a major pain point for retailers that often rely on wire transfers, which can take up to three days to complete.

The result? A need for larger working capital and a slower supply chain for both exporters and importers. That’s a problem that San Francisco-based Wyre is offering to solve with its real-time cross-border payment solution.

“We are trying to get [merchants] away from the idea that waiting three days for payments is efficient,” said Michael Dunworth, cofounder and CEO of Wyre. “Businesses kind of operate on that. If you have got the money and it’s being transferred, then we want to shorten the wait time for the accounts receivable side and reduce the amount of working capital that businesses have because they are waiting on payments from other companies.”

PYMNTS sat down with Dunworth to discuss the cross-border payment hurdles slowing down business between American and Chinese merchants and how blockchain holds the key to providing a faster and secure solution to moving money around the globe.

B2Bs’ need for speed

The year 2016 brought with it a wave of innovation that disrupted cross-border payments. Players, including Earthport, Transpay and Transfast, bolstered support for their cross-border payment offerings with a range of partnerships with international banks to enable real-time transactions.

However, much of this growth has done little to remove barriers that continue to add friction to payments transacted between U.S.- and China-based suppliers.

Considering how much business is conducted between the two countries, payments processing is incredibly inefficient, especially when compared to the ease of processing P2P transactions between the U.S. and other countries, Dunworth said.

“P2P remittances between the U.S. and India is extremely efficient, [between the U.S.] and Mexico is really efficient, but B2B transfer between here and China is just very convoluted,” he said. “There’s no simple way to do it; there are no companies that are excelling at it, and that’s what we are are going for.”

As for the merchants, the need for efficient cross-border payments is overwhelming. A 2014 McKinsey survey found that 70 percent of mid-sized businesses in the U.S. strongly preferred digital channels for payment approvals, account information and foreign exchange transactions.

The demand for faster cross-border payments can also be sized by looking at the broad base of American businesses selling Chinese products on eCommerce marketplaces like Amazon and vice versa, Dunworth pointed out.

“Cross-border payments are a huge component into making sure that they actually received money for the goods they are selling,” he said.

An equally important aspect of providing a good international payment experience is extending competitive foreign exchange rates, which go hand in hand with faster payments. Dunworth said Wyre has made this concept central to its product offering.

“Because we use blockchain, we are actually not susceptible to meet the typical forex market rates,” Dunworth said. “We derive an independent rate from buying and selling digital assets across different regions. So, for us, it’s about how the market is responding at the time.”

And even though traditional rates can sometimes look more competitive, the value of real-time payment processing compounded with the price makes a better product offering than the speed and price of traditional rates, he added.

Blockchain and faster cross-border payments

Just as faster payment initiatives like Same Day ACH are speeding up domestic B2B transactions, blockchain technology is promising to do the same for cross-border payments.

Typically, it can take 24–72 hours for cross-border payments to process, and the service can incur a 1–4.5 percent transaction fee. According to McKinsey, merchants are projected to collectively spend $360 billion in processing fees by 2019.

For about the same transaction fee and a more competitive forex rate, API-based blockchain platforms can significantly cut down processing time.

Wyre, for one, claims to completely process international B2B payments in less than six hours, which would make it the fastest blockchain cross-border payment platform. The company currently processes over $1 million in international payments every day and accounts for 90 percent of monthly B2B transaction volume on blockchain-based payment rails, according to a press release.

The need for faster B2B payments between the U.S. and China is projected to get even larger. 9fBank, one of the largest payment companies in China, estimates the demand for cross-border payment from Chinese companies and investors could reach $1.5 trillion within the next five years.

Earlier this month, 9fBank participated in Wyre’s Series A funding round, which raised $5.8 million.

With the funding in its pocket, Dunworth said, going into 2017, the company plans to make compliance best practices an integral part of its offering with a focus on anti-money laundering and KYC policies that are commonly seen in traditional payment networks.

“Blockchain is a whole new space,” Dunworth said. While there’s a lot of work to be done in the compliance field, it is an exciting time to be kneading the two together, he added.

Download the 2016 Q4 PYMNTS.COM X-Border Payments Optimization Index below.