Among the potentials of Bitcoin and its underlying blockchain technology is the ability to improve efficiency for cross-border payments. In an ideal world (payments-wise) we would all be using the same currency and cross border transactions wouldn’t incur transaction and conversion fees involved with the foreign exchange (FX) market. But FX is a part of every cross-currency transaction and costs related to converting currencies can add up from a percent or two to as high as 10%.
One of the solutions for more efficient cross-currency payments is through the use of bitcoins. In the world of remittance, bitcoins have often been viewed as a natural payment product. One of the typical user examples is that a foreign worker in the UK could purchase bitcoins with pound notes at an ATM and instantly send them to their relatives in another country. The receivers would then convert and withdraw the funds in their local currency using a two-way ATM in their country. Basic banking features could also be created to allow for users to create savings accounts. While such models are being put in place, infrastructure costs that include the placing and servicing of ATMs as well as a lack of liquidity for converting bitcoins to local currencies in exotic markets is providing friction for remittance using bitcoins.
Moving up the ladder to service businesses, one firm that is proving to achieve cost efficiency for cross-border payments using the blockchain is Align Commerce. Speaking to Marwan Forzley, CEO of Align Commerce, he explained to Digital Currency Magnates that “payments on a domestic level are relatively efficient. The friction occurs when you use different currencies and FX costs get involved.” He added that most B2B payments are facilitated through bank-to-bank transfers via Swift. But while such a system works, there is a lack of transparency in pricing, with bank customers rarely having an idea of the price of the currency conversions in relation to the real market. Also an issue is the time involved with Swift bank transfers which can take up to a week to get processed which leads to pricing risks if currency levels change dramatically.
To provide a solution, Align Commerce offers two services to business customers: cross currency invoicing and a cross currency payment gateway for eCommerce companies. The foundation of each service is the ability to allow companies to collect payments from their customer’s currency of choice while receiving it in their local currency.
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Using the invoicing solution, a company in the US can bill a French client $10,000 for services or products being sold. With Align Commerce’s invoicing, the French client receives the invoice with the option to have the value converted to euros for a total fee of 1.9% and a local bank to send the transfer. Upon sending the euros to the local bank, Align Commerce executes the transfer on the blockchain switching fiat to cryptocurrencies and back to fiat. The dollars are then locally transferred to the seller’s account.
Describing the service further, Forzley explained that Align Commerce has relationships with banks in numerous countries as well as relationships with bitcoin exchanges. He explained that a flat fee of 1.9% is below the fee that banks charge when taking the currency exchange rates into account, with the whole payment transfer being executed much quicker. When asked why they use a consistent 1.9% fee and don’t adjust it, Forzley answered that “businesses value a simple cost structure for fees.” Further, Align Commerce provides an “Invoice Status” page for payments to be tracked which is valuable for the businesses that use the platform.
Similar to their invoicing solution, the eCommerce solution is a payment gateway that adjusts the payment currency based on the user. As a result, when checking out, customers are provided the option to pay in their local currency with local options for the fund transfer. Forzley explained that while in the US the credit card system is the defacto method of online shopping, in the rest of the world, and especially in Asia, bank-to-bank transfers are more widely used and are cost effective. As a result, Align Commerce uses a similar fiat-to-crypto-to-fiat system to process eCommerce payments.
This article first appeared on our cryptocurrency website DCMagnates.com