Cross-border payments refer to transactions involving individuals, companies, banks or settlement institutions operating in at least two different countries.
The concept of cross-border payment is not new however, despite its rise in importance in the 21st century.
New technology and the growth of blockchain has brought the term cross-border payment into our daily conversations.
Cross-border payments are an essential term that refers to any transaction involving private individuals’ companies, banks, or financial institutions operating in multiple countries.
We simply call these International Payments. “Cross-border payments” are recognized as using newer technologies such as digital assets or blockchain technology.
Today’s e-commerce world operates around the world. Payments, remittances, transactions, and purchases all often require money exchanged and multiple currencies across borders.
Many different scenarios need to be accounted for when a merchant needs to deal with international payments because each country is governed by its own set of rules and laws.
The demand for cross-border payments is so high that steps are being made to improve cross-border payments as a whole.
Blockchain Disrupting Cross-Border Payments
There are currently issues associated with the cross-border payments however, leading to a greater reliance on new technologies.
For example, in the correspondent banking system, both the originating bank and the foreign bank retain their own ledgers, from which they make reconciliations and settlements.
This leads to a lack of transparency leading to blockchain entering the conversation. As a universal ledger in a distributed network, blockchain allows the sender and the receiver, as nodes in the network, to have a complete copy of the ledger.
Moreover, other nodes in the network must verify any modifications through a consensus mechanism.