The popularity of cryptocurrencies and blockchain technology is skyrocketing, with the adoption of crypto gaining momentum across various industries.
Crypto transaction volumes are growing faster than ever before, increasing 567% from 2020 to 2021. Central Bank Digital Currencies (CBDCs) are being tested in the Eurozone, Canada, Sweden, China, Brazil, the US, and the UK, demonstrating that the digital assets revolution is well underway.
There is clearly an opportunity for Payments businesses and Banks to seize market share in the crypto landscape. But what role do cryptocurrencies play in B2B cross-border payments?
What do traditional cross-border B2B payments look like?
Cross-border payments are financial transactions where the payer and the transaction recipient are based in separate countries. They can be made through various methods including bank transfers, card payments, and alternative payment methods such as digital wallets and mobile payments.
Payments are denominated in different currencies and can involve multiple correspondent banks for each transaction. Domestic banks typically facilitate cross-border payments, with banks within the correspondent banking network acting as intermediaries by collecting funds in the local currency from the sender, exchanging the funds into another currency, and then transferring the funds to the destination country bank. The foreign exchange rates for each transaction are set by market rates, which can fluctuate, adding further complexity and cost to cross-border payments.
Additionally, the cross-border payment landscape is fragmented, with data standards and formats varying by location, and a lack of interoperability between legacy infrastructures making automated reconciliation more difficult.
As traditional cross-border payments often involve multiple financial institutions within the correspondent banking network, they are slow, expensive, and time-sensitive.
How can cryptocurrencies improve cross-border payments?
Cryptocurrencies allow for cross-border payments to be made directly from the sender to the receiver’s crypto wallet. Crypto payments are sent directly to the recipient’s crypto wallet without an intermediary bank.
Bypassing intermediaries and clearing houses, cryptocurrencies offer lower transaction fees compared to conventional cross-border money transfer solutions. This is because cryptocurrencies are decentralised, as the blockchain allows users to transact without a third-party (e.g. correspondent banks).
Cryptocurrencies and blockchain technology can improve transparency, helping businesses manage cash flow and comply with regulatory requirements. Each transaction is recorded in the blockchain, making it immutable and auditable.
Because cryptocurrency payments are decentralised, crypto payments typically involve lower fees compared to traditional bank transfers. And unlike traditional cross-border payments, crypto payment transfers can be completed in a much shorter time as they are not dependent on being conducted inside clearing and settlement operating hours across different jurisdictions.
How can payment service providers and merchants benefit from cryptocurrencies?
Cryptocurrency payments are already being used by businesses for cross-border transactions, and demand is rising, meaning that Payments businesses, Banks, and the merchants and marketplaces they serve need to act now, or risk falling behind the competition.
Cryptocurrencies allow businesses to operate in a global marketplace, and to collect payments and settle payments in different currencies. As cryptocurrencies are borderless, they are not constrained by the geographical boundaries of conventional currencies.
Because they eliminate the need for banks or credit card companies to be involved in transactions between buyers and sellers, cryptocurrencies can help payment service providers and merchants reduce the cost of transaction fees.
Merchants also benefit from cryptocurrencies by being able to avoid any currency conversion fees that might occur when accepting payments from international customers.
The benefits of cryptocurrencies for merchants and payment service providers are clear: decentralised control, lower transaction fees, and reduced exposure to fraud.
However, not all cryptocurrencies are created equal, and it’s important to understand the differences between different cryptocurrencies, stablecoins, and CBDCs when considering their suitability for B2B payments.
Get access to the web3 market with Banking Circle
With Banking Circle’s web3 payments solution, Payments businesses and Banks can process asset-backed stablecoin settlements in the same way as fiat currencies, providing their customers with faster settlement and lower fees outside of traditional bank rails.
Our USDC stablecoins solution can be utilised for payment acceptance, processing and settlement, and is easy to implement, eliminating the need for significant IT or financial investment. To find out more, get in touch.