In today's rapidly evolving digital economy, the demand for efficient cross-border payment solutions is rising. When it comes to cross-border transfers, conventional payment systems are restrictive and expensive, with high fees, complex regulations, and long processing times, posing significant challenges for businesses.
Fortunately, cryptocurrency has emerged as a viable alternative, providing a secure, efficient, and cost-effective option for sending and receiving money across borders.
Let's delve into the advantages of cryptocurrency for international payments, exploring how it can benefit businesses seeking faster, more streamlined cross-border transactions.
Can You Use Crypto for Cross-Border Payments?
Cryptocurrencies are inherently borderless, meaning they have no geographical restrictions like those for fiat currencies. Crypto allows you to transfer money directly to anyone and is convenient for peer-to-peer (P2P) transfers. Therefore, you can easily transfer crypto to anyone from a different country, whether a friend, family member, colleague, or otherwise.
Not only that, using crypto for cross-border payments can also benefit B2B and B2C transfers. Research from Pymnts.com suggests that around 58% of multinational firms use at least one cryptocurrency for payments. Juniper Research also indicates that the cross-border crypto payments for B2B transfers may surpass $4.4 trillion by the end of 2024.
It shows businesses integrate blockchain technology and cryptocurrencies for international payments and settlements. Therefore, you can opt for crypto payments in your business to mitigate the inefficiencies of traditional payment systems.
How to Make International Payments With Cryptocurrency
Using cryptocurrency for international transactions is fairly simple. If you want to send payment to a person living in a different country, you need to acquire the services of a crypto on-ramp like Coinbase, where you can buy crypto with your fiat currency.
To purchase and store crypto, you need a secure cryptocurrency wallet like MetaMask or Phantom. Once you have created a crypto wallet, you can buy crypto through on-ramps by making a transaction with a bank transfer or credit card.
After that, you will require the wallet address of the person you want to send the money to. Then, transfer the crypto to that address, so the other person can receive it in their wallet. They can then swap it for another cryptocurrency or convert it to fiat currency at their convenience.
Many speculate that the high volatility of crypto assets may affect cross-border crypto transfers. But in reality, that is not the case, as now there are many alternatives for solving the volatility issue. For example, one way to make a cross-border crypto payment is to use fiat-backed stablecoins like USDC, USDT, DAI, or BUSD tokens.
What Are Crypto On-Ramps and Off-Ramps?
Knowing cryptocurrency on-ramp and off-ramp transactions is important for understanding cross-border crypto payments. These services create a seamless experience for users to switch from fiat to crypto or vice-versa.
An on-ramp platform facilitates the exchange of fiat currencies for cryptocurrencies. You can buy the same amount of crypto through these platforms with fiat money. On-ramps allow beginners to get into crypto as they provide easy access to the market via fiat, but they're important for all crypto users.
On the other hand, off-ramp platforms allow you to convert your crypto funds into fiat currencies. These are exactly the opposite of on-ramp platforms. Off-ramps are needed to allow users to cash out and exchange their digital assets with money, which is still the predominant means of payment globally.
1. No Intermediaries
One of the biggest challenges with the conventional payment method is that it involves many transaction intermediaries. Global banking networks like SWIFT are used to process international payments and remittances. This means you cannot directly send payments or automate the transaction process.
Crypto offers a solution for this issue by providing a more agile system. It allows direct peer-to-peer (P2P) transfers from one wallet to another. There are no middlemen in cross-border crypto payments, which minimizes transaction delays and speeds up the process. This makes it a more convenient option for B2B transfers for multinational firms.
2. Minimal Transaction Fees
Digital assets also prove to be a cheap cross-border payment medium. The intermediaries involved in international payments through traditional systems increase the transfer cost. According to the 2021 Remittance Prices Worldwide report, the global average for transferring $200 is around 6.30%. Some methods may even cost up to 10%. So, even if you transfer a small amount, a higher fee will usually be charged.
Sending crypto without intermediaries can reduce the overall cost of money transfers. According to an estimate from Deloitte, crypto can reduce cross-border payment prices from 40% to 80%. Most of the crypto trading platforms offer much lower fees. These exchanges charge less than 1% of transactions and offer a cost-effective option for your day-to-day needs.
3. Improved Transparency
Cryptocurrency transfers are blockchain-backed and offer a decentralized environment for transactions. The distributed ledger technology keeps a record of each transaction, which makes it more transparent. It also ensures both parties that their funds are securely sent or received.
Along with ensuring user security, blockchain's transparency can be used for regulatory compliance. Regulatory authorities can easily monitor money transfers to eliminate illegal activities. Using KYC, regulators may implement anti-money laundering laws to ensure cryptocurrencies are not being used for crimes. In addition, it can offer a streamlined financial system through which authorities can also handle taxation.
However, the use of blockchain for maintaining crypto compliance isn't mainstream yet. Global financial authorities are still resistant to using blockchain to ensure compliance. It is one reason crypto is sometimes used for illegal activities.
4. Instant Transfers
When you transfer money through traditional banks, it can take up five or even ten business days (depending on where you live; the EU is much faster than the US). Since numerous intermediaries exist between sender and receiver, it extends the transaction spans. This can be frustrating for companies that need smooth cash flow.
The good news is crypto can solve this issue by processing payments in near instances. It offers a single path for money transfers between sender and receiver by eliminating middlemen. This means you do not have to wait for the bank's operating hours or unnecessary delays from third parties.
5. Eliminates Currency Conversion
Another reason to opt for cryptocurrencies when conducting international transactions is that it eliminates the need to navigate currency conversions. When transferring fiat currency between countries, it is essential to consider the fluctuating exchange rates of different payment channels.
On the other hand, when you are dealing with cryptocurrencies, you do not have to worry about conversions. If you send Bitcoin from Germany to Thailand, it's Bitcoin at both ends, plain and simple. It also saves you from extra currency conversion fees that most banks charge.
Crypto Cross-Border Payments Are Transforming the Global Economy
Cryptocurrency has emerged as an efficient and cost-effective option for businesses regarding cross-border payments. With advantages like direct peer-to-peer transfers, minimal transaction fees, improved transparency, instant transfers, and flexibility, more and more companies are integrating blockchain technology and cryptocurrencies for international payments and settlements.
The future looks bright for this innovative approach. The potential for growth and adoption of cryptocurrency is significant, and it is expected to play a major role in the financial landscape of the future. As we move forward, it is clear that cryptocurrency will continue to disrupt the traditional financial industry, providing businesses with more flexibility and cost-effectiveness in their cross-border transactions.