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Digitalization of cross-border payments: how we move money around the world now. Part 2.

Innovations and disrupting technologies drive market players to introduce revolutionary services to make payment services more efficient. 

In our previous article, we discussed the widely adopted technologies that gained recognition and almost shifted into the category of ‘traditional’ services. This article highlights the most advanced and disruptive technologies that are shaping the cross-border industry today. 

Disrupting technologies will expand the possibilities for consumers and merchants to move money, enabling more fast and efficient payments. In general, innovations fully eliminate the borders integrating the payment zones into one big payment space. 

The unification character is especially distinctive in Open Banking.

Open Banking is a unique technology that enables third-party developers to build new applications around API. Thus, third-party payment processors get access to financial data by means of the use of application programming interfaces (APIs).  Due to API, the third-party providers and financial Institutions integrate into one place different accounts and data across all different institutions. These services make it possible for more apps to directly interface with your bank account, which is where major developments in the worlds of FX and cross-border payments come in.  

The use of API and open banking proved to have immense benefits for cross-border payments. Access to direct transactions between accounts across borders provided by Open Banking and API harnesses the power of cross-border payments. 

The innovation streamlines and simplifies the interaction between financial institutions and third-party service providers. 


Blockchain technology

The traditional transaction systems encounter many obstacles that result in inefficiency, low security, additional costs, and regulation issues with the extra workload. Blockchain is a completely different technology that can be leveraged to provide innumerable benefits due to its structure that enables fast peer-to-peer transactions removing the need for intermediaries and thus providing more speedy and cost-effective transactions. 

According to Deloitte transactions have a 40-80% reduction in their costs (8% of transfer today) due to blockchain. Blockchain, though strongly associated with crypto, now interoperates with traditional institutions for cross-border payments implementation with fiat currency. 

Blockchain in transactions is a DLT (distributed ledger technology), that presents as the technology of interconnected blocks that contain the transaction information including payer address, payee address, timestamp, and transaction value. Therefore, the information is transmitted through these blocks that are linked in chains where each block has its hash value based on the previous block's value. 

In regards to this interconnected block nature, the transactions have their irreversible nature and prove to be secure and tamper-proof. 

The immutable nature of blockchain makes it impossible to access the information on the whole chain. And thus the impossibility to change the information in interconnected blocks eliminates the cases of cyber financial crimes. The lack of middlemen also provides the receiving Party with direct access to the payment as soon as a transaction is recorded enabling it for faster and cheaper transactions. So we can see that seamless movement of the funds across the globe is becoming much easier with disruptive technologies such as blockchain. 


Cryptocurrency 

Blockchain is a term which mostly directs us towards “cryptocurrency”. Though blockchain as a technology can back up the cross-border transactions, eventually, reaching fiat currencies, crypto transactions also predefine their remarkable place in the way people move money beyond boundaries. Generally, with the rise in the mainstream acceptance of crypto payments, the implementation of crypto in facilitating cross-border payments should be a step to overcome in the early future. 

Major payment networks and companies turn to cryptocurrency for fast and convenient transactions. Visa, one of the major payment networks, announced on the 29th of March that it has been going to settle transactions in USD Coin (USDC). 

In addition, Visa has recently announced that crypto-linked card usage tops $1 billion in the first half of 2022. 

PayPal in its turn after allowing its users to buy and sell cryptocurrency has already enabled its customers, allows users to instantly convert their Bitcoin, Ethereum, Litecoin, or Bitcoin Cash to US dollars (with no additional transaction fees) that PayPal then uses to complete the transaction. Hence, merchants from all over the world get the security service for carrying out secure and unrisky cross-border transactions. 

The rise of crypto exchanges such as Coinbase provides the opportunity for peer-2-peer transaction between crypto accounts enabling for immediate cash acceptance, what is especially significant in remittances. 

In recent years, we have witnessed a paradigm shift toward digital technologies in the adoption of cross-border transactions. The disruptive technologies allow parties to transfer funds without intermediaries to achieve rapid, inexpensive, and limitless transactions. 

In times of drastic transition to unification and globalization model, these technologies allow achieving the desired result in much more rapid and convenient way making them the mainstream technologies. 

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