Advantages of blockchain in International Payments
The Advantages of blockchain in the International Money Transfer space
Blockchain technology is still very new when compared to the existing banking systems, but it is well positioned to change the way individuals and institutions process financial transactions on a world-wide scale.
In South Africa it is increasingly common for companies and individuals to source products and services internationally with our existing cross-border payment system not having changed in 50 years. Many people believe that blockchain technology has the same potential to change how business deals with cross-border payments, as the internet did with sharing information.
Below are 6 key reasons why blockchain has the potential to resolve inefficiencies and provide a quicker, cheaper and more secure alternative to the current banking system.
What are the difficulties Of Cross-Border Payments?
Sending an international payment through established South African banking process is a complex, multistep system that involves numerous intermediaries.
If Business A in South Africa wants to pay Company B in the UK, the business in SA must ask its SA bank to transmit the funds overseas. The South Africa bank then partners with an intermediate bank to expedite the transfer, which receives the funds in the UK in order to transfers the money to Company B’s bank account. Each stage requires time and money to manage the process, creating large admin teams and bottlenecks along the way. 7% is the average cost of these global transactions.
Blockchain solves the above frustrations by cutting out unnecessary processes by storing every transaction in a secure distributed ledger. As soon as a transaction is recorded, the receiving party has access to the payment – no middlemen, no bottlenecks, no superfluous fees. A blockchain ledger also has greater accountability and security as no entry can be changed or illuminated from the ledger.
The Advantages of Blockchain Payments
Overseas payments processed by blockchain provide numerous advantages to an economy, as they cost less, are almost instant, and are far more secure and transparent. Deloitte estimates that business-to-business and person-to-person payments with blockchain result in a 40% to 80% reduction in transaction costs, and take an average of four to six seconds to finalize. This can be compared to what is two to three working days using the standard South African transfer system).
Blockchain payments are as quick as email happening almost instantly. The capability to move funds around the world in real time will allow companies to take actions on new opportunities instantly or helps businesses to address customer needs without making them wait for funds to clear.
Rather than paying transfer fees to numerous banking entities, businesses using blockchain are charged a one-off nominal amount or nothing at all. Cost savings for a company which makes a significant number of international transactions will be huge.
Blockchain gets rid of any chance of discrepancies in the keeping of records. The records are held in a decentralized ledger, where each transaction can be verified and there is no chance of changing the details of a transaction. What is even more impressive is that these records are stored by a multiply organisations and accredited users around the globe to see. This means the record are not just stored by a single financial institution or IT server. The ledger will look exactly the same from various places in Europe as it would in China or South Africa. The information is global and not just stored of in 4 databases in one or two cities.
If banking records are maintained by single central organisation, like a bank, customer data could be hacked, destroyed or download putting individuals and companies at risk.
With blockchain, all transactions are encoded by cryptography, and linked to the previous transactions and then distributed to all accredited partners making up the blockchain. To meddle with data, skilled individuals would have to alter all earlier transactions in the ledger which is not possible due to the immense computer power required to go back through all the records.
Information Source: Saitful Khandaker - Forbes