moneyswitch
Published in

moneyswitch

Blockchain Technology is Disrupting the Cross-Border Payment Industry

In 2022 global cross-border payments and remittance flows are estimated to be worth more than $156tn, and this figure is expected to grow in 2023. However, individuals and businesses still struggle to make cross-border payments. The SWIFT network is the pillar of all this global economic activity and has employed the same modus operandi since the 1970s, despite the massive uptick in international transfers of value.

It is estimated that the SWIFT system has over 11,000 banks and financial institutions sending out over 42 million messages every day to complete cross-border transactions.

Problems with the SWIFT System

The SWIFT network is heavily used by banks globally, which have become over-dependent on legacy systems. It has inhibited international business growth, and whilst FinTech (Financial Technology) companies have attempted to solve the problem, the major inefficiencies remain.

Time Constraints

In a world dependent on speed, payments made via the SWIFT network have an extended settlement period due to them travelling through correspondent banks. Payments take 1–5 business days to reach the receiver.

Security Breaches

In 2016, hackers transferred $81M from the Central Bank of Bangladesh using their employees’ SWIFT codes. They breached the bank systems and compromised the login passwords to the SWIFT network access points. Cybersecurity is a huge concern for businesses, and hackers can target possible victims through banks in countries with soft access points to SWIFT.

High Fees

FX (foreign exchange) costs, regulatory fees and intermediary bank fees make international payments expensive. Businesses and customers need to budget for undisclosed transfer fees on top of their payments to ensure successful transactions.

Lack of Transparency

Businesses and individuals must estimate the hidden costs per transaction, as there is no detailed list of all expenses incurred, increasing the possibility of settlement failure.

The Current Situation

There has been a slight improvement in SWIFT transaction processing in recent years, but significant pain points still exist, and real-time payment processing capabilities are not even conceivable. Most financial institutions profit from these inefficiencies, obtaining revenue from FX rates and transaction fees. Most of Western Union’s income comes from transaction fees, and Paypal charges fees on international transfers.

FinTech (Financial Technology) and now DeFi (Decentralized Finance)

Traditional banks have historically been at the center of international trades, profiting from FX rates and transaction fees — at the expense of customers. In recent years, new players emerged, entering the market to disrupt and optimize cross-border payments. These FinTech companies have made the best of a bad situation by introducing pre-funding that allows for faster settlements within the current framework. But pre-funding comes with a slew of its own problems: an obscene capital requirement mandated and capital inefficiency.

Stablecoins have become a popular use case for cross-border payments powered by the blockchain, offering an easy way to transfer value globally with negligible fees.

MoneySwitch

MoneySwitch is an L-a-a-S (Liquidity as a Service) platform that offers uncollateralized loans to cross-border payment providers with pre-agreed loan terms. MoneySwitch is home to stablecoin liquidity pools where users can deposit stable assets to generate revenue. MoneySwitch pairs a highly capitalized market segment (DeFi lending) with an industry with a constant and growing demand for liquidity (cross-border payment providers).

FinTech developed pre-funding to speed up international settlements, and MoneySwitch using blockchain technology brings on-demand liquidity to cross-border payments. This means these CPPs (cross-border payment providers) no longer need to leave large sums sitting dormant in foreign accounts but can instantly borrow the required amount of liquidity and send it exactly where it is needed. Pre-funding was a step in the right direction but not sufficient for the modern necessity of international transfers of value; MoneySwitch’s on-demand liquidity uses the best available technology (blockchain and DeFi) to bring cross-border payments into the modern age.

MoneySwitch represents the next evolution in the cross-border payment industry history and powers the cross-border payments of tomorrow.

Want to learn more about MoneySwitch and the changing reality of global payments? Please join us here, and for further information on how to help power the cross-border payments of tomorrow whilst earning yield on your stablecoins, visit us here.

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store