HaohanXu is chief executive officer of Apifiny, a global trading and value transfer network. Views expressed are the author's own.
Barriers are springing up everywhere for remittance companies and banks. Overcoming obstacles to cross-border payments is especially daunting right now, with slow settlement times, high fees and fresh competition bringing new challenges.
COVID-19 has brought unwelcome complications to international settlement. The World Bank in April issued an alarming report: Its experts project global remittances to decline by roughly 20% in 2020 the sharpest drop in recent history because of the pandemic and resulting shutdowns. This means banks are losing business from a wide swath of society: employees ranging from seasonal workers to those who work for embassies, international organizations and foreign companies.
Adverse global conditions arising from the coronavirus have played a huge part in this disruption of international remittance growth. However, even a vaccine won't cure the challenges for remittances. If international workers must still pay high fees and endure long settlement times, they will forcefully demand better and more affordable services, and may actively explore alternative international payments solutions.
It's not too late for banking institutions to retain these customers. However, they must recognize the barriers preventing the execution of cross-border payments that are faster, more cost-effective and more reliable.
Banks and payments companies face two key international remittance roadblocks:
No global network.International payments are painful because no single global network or service exists for all banks participation that enables real-time funds settlement.
While the Society for Worldwide Interbank Financial Telecommunication (SWIFT) protocol is far-reaching, it is a messaging service and not a true banking network. A bank in one region can send a message to a bank in another with SWIFT, but they must have a bilateral arrangement or rely on other banks that have the relationships. SWIFT unquestionably improved on the lack of international coordination preceding it. However, its structure remains inefficient and convoluted, causing long settlement cycles.
This lack of a global settlement network carries higher transaction costs, too. The global average cost of sending $200 was 6.8%in the first quarter of 2020, according to the World Bank. In Sub-Saharan Africa, that cost is around 9% high enough to be a deterrent.
Outdated tech.Most banks'post-execution technology platforms are increasingly outdated. They also typically prove difficult and expensive to change. These platforms often comprise multiple interoperating systems including middle office, clearing and settlement, books and records, risk systems for securities processing, payment systems and general ledger processing.
As a result, banks must undergo high-risk, expensive, multiyear projects to elevate their processing platforms to modern standards.
Although clearing and settlement for securities differ from remittances, a closer look at securities settlement provides a window to how banks can revitalize remittances.
For securities, there is typically a central depository and a centralized clearing and settlement service such as The Depository Trust & Clearing Corp. (DTCC) in the U.S. for the financial markets. Together, these two entities provide clearing, settlement and custody services for member firms, meaning all transactions from financial institutions and their counterparties must be submitted. DTCC is the custodian of the stock certificates and, via the Continuous Net Settlement process, it provides each member with a net obligation between counterparties that it's due to deliver or receive for each security, without physically transferring the stock certificates.
While this netting provides efficiency and reduces counterparty risk, it is a centralized process that takes two days in the U.S.
Member firms must also pledge capital or securities to cover for potential failures, tying up capital that could be deployed elsewhere. A major overhaul of DTCC technology would be required to enable real-time settlement.
DTCC is actively addressing that securities sector roadblock, evaluating distributed ledger technology (DLT)solutions that it hopes will significantly accelerate settlement for their industry. Dual DTCC initiatives Project Ion and Project Whitney have been announced to better integrate DLT with capital markets. DLT is a key component of blockchain, a rapidly maturing technology with the proven ability to execute peer-to-peer, direct-value transfer between parties for traditional assets like fiat currency, securities and commodities.
Blockchain technology is a leading candidate to sweep away the roadblocks noted above and many more in the drive to transform global settlement. It can enable banks to make transactions transparent to all relevant parties in minutes. The evolution of the financial account paradigm into the token paradigm via blockchain technology enables traditional assets like fiat currency, securities and commodities to be digitized as tokens. Blockchain technology can "mirror"virtually any asset for instantaneous value transfer between parties, with complete transparency.
This technology eliminates the need for much of the middle-office processing used to successfully confirm transactions and identities between parties. Real-time settlement reduces the need to spread reserves across multiple exchanges, optimizing capital utilization and reducing trading costs.
Banks and other parties to a transaction are ready to benefit from the next generation of blockchain-based solutions. The latest blockchain technology advancements are fully capable of creating a network that goes beyond simply being a messaging service like SWIFT to one that optimizes transactions using smart contracts to fulfill the settlement lifecycle. Participants on such a network can transact and have the transaction visible and settled between parties in minutes or even seconds instead of days, leading to significant increases in transparency and efficiency in step with cost reductions.
The banking industry could be on the verge of moving settlement to the next level. Transaction participants are hungry for a new kind of transparent, global 24/7 network boosted by seamless access and near-instant transactions for a fraction of today's costs. Banks must take courageous action to transcend the status quo. The speed, cost savings and customer satisfaction rewards of a blockchain-based settlement network will reward their bravery.
See the original post here:
Blockchain technology will remove barriers to instant international settlement - Banking Dive
- Blockchain: The Complete Guide | WIRED - February 6th, 2018 [February 6th, 2018]
- What Is Blockchain Technology? - cbinsights.com - February 6th, 2018 [February 6th, 2018]
- 7 Ways Blockchain Will Enable Entrepreneurs in 2018 | Inc.com - February 6th, 2018 [February 6th, 2018]
- Blockchain technology | Microsoft Azure - March 26th, 2018 [March 26th, 2018]
- Blockchain Wallet on the App Store - itunes.apple.com - May 5th, 2018 [May 5th, 2018]
- Bitcoin and Blockchain - Bloomberg - May 5th, 2018 [May 5th, 2018]
- Blockchain - The Daily Reckoning - May 5th, 2018 [May 5th, 2018]
- BIS show London - Blockchain Conference London | FinTech ... - July 14th, 2018 [July 14th, 2018]
- 2018 Bahamas Blockchain & Cryptocurrency Conference - July 27th, 2018 [July 27th, 2018]
- WORLD BLOCKCHAIN CONFERENCE - August 20th, 2018 [August 20th, 2018]
- Azure Blockchain Workbench | Microsoft Azure - September 29th, 2018 [September 29th, 2018]
- Crypto Guru on Bitcoin, ICOs, Blockchain, ETFs, & More ... - September 29th, 2018 [September 29th, 2018]
- Dot Blockchain Media - September 29th, 2018 [September 29th, 2018]
- 75 banks join JPMorgan-led blockchain payment project ... - September 29th, 2018 [September 29th, 2018]
- Walmart will use blockchain to ensure the safety of leafy greens - September 29th, 2018 [September 29th, 2018]
- Malta wants to become 'Blockchain Island' - September 29th, 2018 [September 29th, 2018]
- Walmart is betting on the blockchain to improve food safety ... - September 29th, 2018 [September 29th, 2018]
- From Farm to Blockchain: Walmart Tracks Its Lettuce - September 29th, 2018 [September 29th, 2018]
- The Truth About Blockchain - Harvard Business Review - October 2nd, 2018 [October 2nd, 2018]
- Blockchain.io | Your Gateway to the Internet of Value - October 17th, 2018 [October 17th, 2018]
- Blockchain Whispers: The Most Accurate Crypto Signals - December 8th, 2018 [December 8th, 2018]
- MLG Blockchain - Expert Blockchain Consulting & Development - December 10th, 2018 [December 10th, 2018]
- What Is The Blockchain? - Pixel Privacy - December 27th, 2018 [December 27th, 2018]
- Blockchain Wallet: Bitcoin on the App Store - January 13th, 2019 [January 13th, 2019]
- The Ultimate Guide To Understanding What A Blockchain Is ... - March 20th, 2019 [March 20th, 2019]
- Amazon Managed Blockchain - March 20th, 2019 [March 20th, 2019]
- What Is Blockchain? The Complete WIRED Guide | WIRED - March 20th, 2019 [March 20th, 2019]
- Symmetry - March 28th, 2019 [March 28th, 2019]
- What is Blockchain Technology? A Beginners Guide - April 18th, 2019 [April 18th, 2019]
- Yosemite X uses blockchain tech to shorten payments trip ... - April 20th, 2019 [April 20th, 2019]
- BitcoinSVs blockchain is struggling with its enormous 128MB ... - April 20th, 2019 [April 20th, 2019]
- Jimmy Song discusses Bitcoin, blockchain, and the crypto space - April 20th, 2019 [April 20th, 2019]
- Blockchain on AWS - May 5th, 2019 [May 5th, 2019]
- Blockchain Login Blockchain - June 7th, 2019 [June 7th, 2019]
- German telecom giant hires blockchain professor hopefully, its a good thing - The Next Web - September 25th, 2019 [September 25th, 2019]
- Israeli Startup Creates Offline Wallet With Access to the Blockchain - CoinDesk - September 25th, 2019 [September 25th, 2019]
- Overstock seeks blockchain stock registration with SEC - CoinGeek - September 25th, 2019 [September 25th, 2019]
- Telefnica Making Provisions Not To Miss The Blockchain Boat - Forbes - September 25th, 2019 [September 25th, 2019]
- Verizon and Wells Fargo Are Getting on the Blockchain - Market Realist - September 25th, 2019 [September 25th, 2019]
- Blockchain Mortgages Could Help The Impending Recession - Forbes - September 25th, 2019 [September 25th, 2019]
- The Smartest Way to Buy Blockchain Stocks - Zacks.com - September 25th, 2019 [September 25th, 2019]
- Vodafone litters London with blockchain tokens in new augmented reality game - The Next Web - September 25th, 2019 [September 25th, 2019]
- 5 Enterprise Blockchain Stories of the Week - Forbes - September 25th, 2019 [September 25th, 2019]
- ternity Partners with Uruguay Can to Track Cannabis Production on the Blockchain - GlobeNewswire - September 25th, 2019 [September 25th, 2019]
- Putting blockchain technology to good use - ComputerWeekly.com - September 25th, 2019 [September 25th, 2019]
- Blockchain simplified: How it eliminates the middleman - Big Think - September 25th, 2019 [September 25th, 2019]
- Building On Blockchain Without Code: Proxeus Goes Live - PRNewswire - September 25th, 2019 [September 25th, 2019]
- Googles Quantum Computing Breakthrough Brings Blockchain Resistance Into the Spotlight Again - Forbes - September 25th, 2019 [September 25th, 2019]
- Five things to know about blockchain and CRE - REjournals.com - September 25th, 2019 [September 25th, 2019]
- Blockchain Technology Is Already Improving Lives At 22 Hospitals - Forbes - September 25th, 2019 [September 25th, 2019]
- How Blockchain Is Changing The Game For Social Impact Initiatives - Forbes - September 25th, 2019 [September 25th, 2019]
- The Shift Toward Decentralized Finance: Why Are Financial Firms Turning To Crypto? - Forbes - October 1st, 2019 [October 1st, 2019]
- Could Blockchain Revolutionize the Real Estate Industry? - RisMedia.com - October 1st, 2019 [October 1st, 2019]
- Cross Reality And Blockchain - A New Era Of The VR Industry - Forbes - October 1st, 2019 [October 1st, 2019]
- Vontobel to offer structured product using blockchain technology - Investment Europe - October 1st, 2019 [October 1st, 2019]
- MineRP to partner with Karuschain to adopt blockchain platform - Mining Technology - October 1st, 2019 [October 1st, 2019]
- Stellar Development Foundation proposes to disable inflation mechanism from its protocol - The Block Crypto - October 1st, 2019 [October 1st, 2019]
- BurstIQ raises $5.5M to bring blockchain to the healthcare space - VatorNews - October 1st, 2019 [October 1st, 2019]
- Blockchains Next Frontier: Saving the Planet (and Possibly Pandas, Too) - Observer - October 1st, 2019 [October 1st, 2019]
- Mark Cuban bullish on blockchain, but would take bananas over bitcoin - The Block Crypto - October 1st, 2019 [October 1st, 2019]
- Energy Industry Blockchain Landscape - The National Law Review - October 1st, 2019 [October 1st, 2019]
- US Homeland Security grants blockchain credentialing contract to Danube Tech - Ledger Insights - October 1st, 2019 [October 1st, 2019]
- U Wyoming Spurs Blockchain Development with Hackathon 'Stampede' - Campus Technology - October 1st, 2019 [October 1st, 2019]
- How the blockchain is inspiring organizational design - Quartz - October 1st, 2019 [October 1st, 2019]
- Blockchain At The United Nations Leading Solutions To The Global Crisis - Forbes - October 1st, 2019 [October 1st, 2019]
- Exploring cryptocurrency and blockchain in Iceland - Penn: Office of University Communications - October 1st, 2019 [October 1st, 2019]
- Will Facebook's Libra Overtake Bitcoin Cryptocurrency And The Ethereum Blockchain? How Will It Work? - Forbes - October 1st, 2019 [October 1st, 2019]
- Overstock.com Hones In On Blockchain Identity With Medici Ventures And Evernym Partnership - Forbes - October 1st, 2019 [October 1st, 2019]
- How Blockchain Is Affecting The Marketing And Advertising Industry - Forbes - October 1st, 2019 [October 1st, 2019]
- Japanese Messaging App LINE Positioning Itself As Leader In Blockchain and Crypto Space - Forbes - October 1st, 2019 [October 1st, 2019]
- Could Blockchain Help the Cannabis Industry? Were About to Find Out - Observer - October 1st, 2019 [October 1st, 2019]
- Energy Blockchain Applications Expected to Experience a 67% CAGR - Transmission & Distribution World - October 24th, 2019 [October 24th, 2019]
- Blockchain Technology is Disrupting the Startup Ecosystem - Times of India - October 24th, 2019 [October 24th, 2019]
- Is blockchain the answer for sustainability in the cocoa sector? - ConfectioneryNews.com - October 24th, 2019 [October 24th, 2019]
- Blockchain voting is vulnerable to hackers, software glitches and bad ID photos among other problems - The Conversation US - October 24th, 2019 [October 24th, 2019]
- Blockchain is not the only solution for better and faster payments - Euromoney magazine - October 24th, 2019 [October 24th, 2019]
- Can blockchain restore trust to the fund management and audit industries? - Accountancy Age - October 24th, 2019 [October 24th, 2019]
- Smart contracts and blockchain will provide needed trust, says Princeton professor - TechRepublic - October 24th, 2019 [October 24th, 2019]
- Gartner IT Symposium/Xpo 2019: Blockchain strategy must evolve at the same pace as technology - TechRepublic - October 24th, 2019 [October 24th, 2019]
- Binance CEO: Putin Is the Most Influential Person in Blockchain - Cointelegraph - October 24th, 2019 [October 24th, 2019]