5 reasons why you should use crypto for cross-border payments
In today’s rapidly developing digital economy, the demand for efficient payment solutions across national borders is increasing. When it comes to cross-border transfers, conventional payment systems are restrictive and expensive, with high fees, complex regulations and long processing times, which pose significant challenges for businesses.
Fortunately, cryptocurrency has emerged as a viable option, providing a secure, efficient and cost-effective option for sending and receiving money across borders.
Let’s delve into the benefits of cryptocurrency for international payments and explore how it can benefit businesses seeking faster and more streamlined cross-border transactions.
Can you use crypto for cross-border payments?
Cryptocurrencies are inherently borderless, meaning they have no geographic restrictions like those of 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 another country, be it a friend, family member, colleague or otherwise.
Not only that, using crypto for cross-border payments can also benefit B2B and B2C transfers. Research by Pymnts.com suggests that around 58% of multinational firms use at least one cryptocurrency for payments. Juniper Research also indicates that cross-border crypto payments for B2B transfers could exceed $4.4 trillion by the end of 2024.
It shows businesses integrating blockchain technology and cryptocurrencies for international payments and settlements. Therefore, you can choose crypto payments in your business to reduce the inefficiency of traditional payment systems.
How to make international payments with cryptocurrency
Using cryptocurrency for international transactions is quite simple. If you want to send payment to a person living in another country, you need to get the services of a crypto platform like Coinbase, where you can buy crypto with your fiat currency.
To buy and store crypto, you need a secure cryptocurrency wallet like MetaMask or Phantom. Once you’ve created a crypto wallet, you can buy crypto through on-ramps by making a bank transfer or credit card transaction.
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 exchange 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 it is not the case as there are now many options to solve the volatility problem. For example, one way to make a cross-border crypto payment is to use fiat-backed stablecoins such as USDC, USDT, DAI or BUSD tokens.
What are Crypto On-ramps and Off-ramps?
Knowing on- and off-ramp cryptocurrency transactions is essential to 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 enter crypto as they provide easy access to the market via fiat, but they are important for all crypto users.
On the other hand, off-ramp platforms allow you to convert your crypto assets into fiat currencies. These are the exact opposite of ramp platforms. Exits are necessary to allow users to withdraw and exchange their digital assets for money, which remains the dominant means of payment globally.
So, with that in mind, why choose cryptocurrency for limitless transactions? Here are the five benefits of using crypto for international payments.
One of the biggest challenges with the conventional payment method is that it involves many transaction intermediaries. Global banking networks such as SWIFT are used to process international payments and money transfers. This means you cannot send payments directly or automate the transaction process.
Crypto offers a solution to this problem by offering a more flexible system. It allows direct peer-to-peer (P2P) transfers from one wallet to another. There are no intermediaries in cross-border crypto payments, which minimizes transaction delays and speeds up the process. This makes it a more practical option for B2B transfers for multinational firms.
2. Minimal transaction fees
Digital assets are also proving to be a cheap means of payment across national borders. The intermediaries involved in international payments through traditional systems increase transfer costs. According to the 2021 Remittance Prices Worldwide report, the global average for remittance of $200 is around 6.30%. Some methods can 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 by 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 daily needs.
3. Improved transparency
Cryptocurrency transfers are blockchain-backed and offer a decentralized environment for transactions. The distributed ledger technology keeps track of every transaction, making it more transparent. It also ensures both parties that their money is sent or received securely.
Along with ensuring user security, the blockchain’s transparency can be used to comply with regulations. Regulators can easily monitor money transfers to eliminate illegal activities. By using KYC, regulators can implement anti-money laundering laws to ensure that cryptocurrencies are not used for crimes. In addition, it can offer a streamlined financial system where the authorities can also handle taxation.
However, the use of blockchain to maintain crypto compliance is not yet mainstream. Global financial authorities remain resistant to using blockchain to ensure compliance. There is a reason why crypto is sometimes used for illegal activities.
4. Instant Transfers
When transferring money through traditional banks, it can take five or even ten business days (depending on where you live; the EU is much faster than the US). Since many intermediaries exist between sender and receiver, it widens the transaction spans. This can be frustrating for companies that need steady cash flow.
The good news is that crypto can solve this problem by processing payments in close cases. It offers a single path for money transfers between sender and receiver by eliminating middlemen. This means that you don’t have to wait for the bank’s opening hours or unnecessary delays from third parties.
5. Eliminates currency conversion
Another reason to choose cryptocurrencies when conducting international transactions is that it eliminates the need to navigate currency conversions. When transferring fiat currency between countries, it is important to consider the varying exchange rates of different payment channels.
On the other hand, when you’re dealing with cryptocurrencies, you don’t have to worry about conversions. If you send Bitcoin from Germany to Thailand, it’s Bitcoin on both ends, plain and simple. It also saves you from extra currency conversion fees that most banks charge.
Cross-border crypto payments are transforming the global economy
Cryptocurrency has emerged as an efficient and cost-effective alternative for businesses when it comes to cross-border payments. With benefits such as 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 use of cryptocurrency is significant, and it is expected to play a major role in the future economic landscape. Moving forward, it is clear that cryptocurrency will continue to disrupt the traditional financial industry, giving businesses more flexibility and cost efficiency in their cross-border transactions.
