• Carlos Ordonez, Business Development Manager at Clear Junction


• 28.02.2024 12:45 pm
#payments #blockchain #transformation

2023 saw cross-border payments navigate complicated landscapes. Global remittance flows continued their ascent, albeit at a slower pace, highlighting regional disparities and vulnerability to economic headwinds like higher prices and slower growth. Could blockchain be the transformative technology that builds a truly inclusive, efficient, and accessible ecosystem for sending money across borders?

In 2023, the United States continued to be the biggest transmitter, whilst the main countries receiving money were India, Mexico, China, the Philippines, and Egypt. Interestingly, remittances to Europe and Central Asia decreased by 1.4% despite its significant increase of over 18% in 2022. Overall, in 2023, global remittance to low- and middle-income countries reached an estimated $669 billion, which is an increase of 3.8% from the previous year. This growth, although moderate compared to exceptional gains seen in 2021 and 2022, underscores the enduring support that migrant workers provide for their families back home.

The main challenge of the industry in 2024 will continue to be the high cost of cross-border payments. The World Bank’s database shows that sending $200 across borders costs an average of 6.2%, with banks remaining the most expensive channel at 12.1%.

How technology is solving cross-border payment challenges

Traditional cross-border payments often encounter delays and high costs due to intermediaries. But with real-time settlement, blockchain eliminates the need for these intermediaries, slashes transaction times and also holds the potential to significantly reduce fees, something particularly beneficial for small businesses and individuals engaged in remittances.

Blockchain’s distributed ledger technology also offers a robust defence against fraud. Every transaction is meticulously recorded on a shared ledger, offering unprecedented transparency and traceability. This not only fosters trust but also addresses concerns about the lack of clarity in cross-border payments.

With its inherent speed and security, through decentralised exchanges and digital wallets powered by blockchain, financial services can be extended without the need for traditional bank accounts, fostering financial inclusion for the underserved, and contributing to economic growth in developing countries.

Crucially, 2024 will bring positive strides and progress in regulatory frameworks, addressing concerns related to compliance and consumer protection, paving the way for wider acceptance of blockchain in cross-border payments. We’re already seeing the positive impact of regulations like the EU’s MiCA framework: major financial institutions, including J.P. Morgan, are actively exploring blockchain solutions for cross-border payments. The momentum is expected to intensify in 2024, driving increased infrastructure development and industry-wide adoption.

Fuelling this momentum are innovative startups leveraging blockchain to create faster, cheaper, and user-friendly cross-border payment platforms. These solutions, tailored to specific market segments, offer viable alternatives to traditional banks, injecting healthy competition into the industry.

Collaboration between different platforms and protocols will facilitate seamless cross-border transactions, bolstering overall efficiency. By working together, we can unlock the full potential of blockchain.

Ultimately, blockchain emerges as a game-changer, tackling the challenges that plague traditional systems. The year 2024 marks the first crucial steps towards realising that potential, and the future of cross-border payments has never looked brighter.