Why Cross Border Payments Are Hard and How Crypto Payments Might Solve It

  1. Send money to family in another country and paid 10%+ fees.
  2. Pay an educational institution 15K USD and faced two options: ~5% of the transaction via card or $3 on ACH (but you don’t have a US bank account).
  1. Propose how crypto payments might help make cross border payments easier
  2. Outline challenges that lie ahead for crypto payments to reach its full potential

What are Cross Border payments?

Here are four types of common cross border flows:

  1. Business to consumer: Payroll for a global company, payment to freelancers abroad, off ramps for exchanges
  2. Business to business: B2B invoice payments to suppliers in another country
  3. Consumer to consumer: Remittance flows, like migrants sending money home.

Why are cross border payments so hard?

I propose four reasons why cross border payments are so hard. The reasons are non exhaustive, and many are working to solve this.

Photo by Martin Vorel on StockSnap

How might crypto payments help make cross border payments easier?

Before I dive into how crypto payments might help make cross border payments easier, there are existing non-crypto based solutions today. Crypto payments will develop in parallel to these solutions. Two examples:

  • Consumer to consumer: Wise, Remitly are doing great work in this space. An anecdote from a friend moving money from AU to SG. Initially, the fees they paid to an AU bank was up to 5%+, before they switched to Wise, which had significantly cheaper fees. In the public sector, there are ongoing efforts to build real time payment network corridors e.g., Thailand <> Singapore (live and enabling same day cross border transactions, vs 1–2 days).

Consumer to consumer use case

We’ll focus on the consumer to consumer use case. Here’s a simplified example.

  • You can send/receive ETH (as an example) from another wallet holder. See screenshot below. The imperfect analogy is that the self custodial wallet is both a software ledger and a “universal” digital asset account. Now, one can send digital assets to anyone in the world. The transaction happens almost instantly, and is possible 24/7. No worries about SWIFT codes, ABN numbers, bank account numbers, going to a bank branch during business hours etc.
“Receiving” via QR or “share address”. See YouTube for the full CB Wallet tutorial

Challenges that lie ahead

What needs to be true for crypto payments to solve the friction in cross border payments? Here are several challenges:

  1. Fees: What’s the cost of each transaction? Regular fiat cross border payments are expensive (e.g., ~10% of transaction), and fintechs have helped significantly reduce this to <1–2% for some cross border corridors. Gas fees may fluctuate and add unpredictability to crypto payment fees, increasing the cost per transaction.
  2. Volatility: How will volatility be managed? Crypto prices have high volatility (exception: stablecoins). Ideally, the “value” received cross border should be equal to the “value” sent, net fees.
  3. Ease of use: There are still significant barriers to entry. It is daunting to create a self custodial wallet, securely store the seed phrase, acquire, use and transfer tokens. Sending to a wallet address is irreversible and can feel unerving. Converting token to fiat (“off ramp” is not straightforward — not all exchanges support it in every country). If the token is not widely accepted, then funds are “stuck”. The current power of regular fiat cross border payments is that the funds are immediately usable once you receive them.

Conclusion

Crypto payments have the potential to transform cross border payments. Its greatest strengths are speed, availability (24/7) and no middle layers. However, there is significant work ahead to improve costs, increase predictability, and grow the ease of use for mainstream adoption. I am curious to see how things unfold, so that consumers and businesses around the world can experience truly frictionless, cheap and fast cross border payments.

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Celine Wee

Celine Wee

Musings are my own: a collection of learnings from Payments, Go To Market, Web3, Biz Ops across Stripe, Coinbase, Twitter.