Blockchain and Cross border payments

 

Important questions

 

1.  What is cross-border payment?

2.  How does Blockchain help in payments?

3.  How do you send money through Blockchain?

4.  Why are cross-border payments expensive?

5.  Do banks use Blockchain?

6.  Can Blockchain be used for payments?

7.  Which Blockchain Will banks use?

8.  Does Amazon use Blockchain?

9.  Which banks use Blockchain?

10.     How long does a cross border payment take?

11.     How does cross border remittance work?

 

What is cross-border payment?

·       Cross-border payments are transactions sent from one country and received in a different country.

·       Transfer fees, bank fees, local currency, foreign currency conversion rates, exchange fees, and international credit card fees may apply to cross-border transactions.

 

How does Blockchain help in payments?

o  By establishing a decentralized ledger for payments (e.g. Bitcoin), blockchain technology could facilitate faster payments at lower fees than banks.

o  Clearance and Settlement Systems: Distributed ledgers can reduce operational costs and bring us closer to real-time transactions between financial institutions.

 

How do you send money through Blockchain?

·       Click on Send and select Bitcoin from the Currency drop-down menu.

·       If you have multiple sub-wallets, you can choose the sub-wallet you want to send from in the from drop-down menu.

·       In the To field, paste the recipient's address OR scan the recipient's QR code.

·       Enter the amount you want to send.

 

Why are cross-border payments expensive?

·       There are numerous costs when it comes to cross-border transactions.

·       Most of them are absorbed by bank fees, which are more costly than any other part of the transaction.

·       So while cross-border payments are costly, they are in such high demand, that they grow.

 

Do banks use Blockchain?

·       Blockchain is a digital ledger and the technology used to transact with cryptocurrencies like bitcoin.

·       JPMorgan, Citi, Wells Fargo, US Bancorp, PNC, Fifth Third Bank, and Signature Bank are among some of the banks that said they use blockchain.

 

Can Blockchain be used for payments?

·       Blockchain technology promises to facilitate fast, secure, low-cost international payment processing services (and other transactions) through the use of encrypted distributed ledgers that provide trusted real-time verification of transactions without the need for intermediaries such as correspondent banks and clearing.

 

Which Blockchain Will banks use?

·       Much of Italy's banking sector now uses Spunta, a blockchain network based on technology from New York-based firm R3.

·       JPMorgan Chase's in-house digital currency JPM Coin recently went live for the first time with a large technology client.

 

Does Amazon use Blockchain?

·       Amazon Managed Blockchain fully manages our blockchain infrastructure and shared network components, enabling us to focus on developing smart contracts to deliver additional value to our customers.

 

Which banks use Blockchain?

·       In 2016, the US Federal Reserve was working with IBM to implement a blockchain-based digital payment system.

·       And these are not the only examples of banks using blockchain – other well-known banks tapping into the blockchain are Deutsche Bank, Barclays Bank, BNP Paribas, etc.

 

How long does a cross border payment take?

·       International payments normally take between two to five business days to clear.

·       The timeframe is dependent on where the funds are being sent to and the number of intermediary banks in between.

·       The more financial institutions that the payment has to pass through, the longer the transaction will take to clear.

How does cross border remittance work?

·       In a cross-border payment, SWIFT handles only the movement of messages along the payment chain.

·       The correspondent banks do the actual debits and credits across accounts based on the message and help pass on the value to the final beneficiary.

Can you hack Blockchain?

·       The bitcoin network is underpinned by the blockchain technology, which is very difficult to hack.

·       In blockchain technology, data isn't stored in a central server, but across a huge network of computers, which is constantly checking and verifying if the records are accurate.

Steps to Sending Cross-Border Payments

Both domestic and international payment processing involves seven steps. With cross-border payments, additional factors must be considered.

1. Purchase

·       When sourcing globally, find an international supplier that want to purchase from.

·       If buying online, be directed to the payee’s checkout page to make all payment.

·       If buying over the phone, a sales representative will conduct the checkout process.

·       Either way, be presented with payment options.

§  Ideally, if buying online, the checkout page will offer a localized experience, meaning - native language. The payee uses URL to determine which language to present the checkout page in and will hopefully offer local payment methods that are familiar with.

 

2. Routing and Processing

·       Once enter - payment information, be sent via an encrypted gateway to obtain authorization to deduct the funds from account.

·       Here’s the catch: If using a global payments platform that is connected to only one bank, the transaction may be flagged.

·       Using a platform that is connected with multiple banks around the globe improves the chances of the payment being processed the first time around.

Whether paying publishers or setting up a new supply chain, ensure each payment goes through without error. A global payments platform can automate the payment process for user, regardless if it’s a one-time or recurring transaction.

3. Payment Approval or Denial

·       User payment will be approved or declined.

·       Verification takes place to ensure user have sufficient funds in user’s account, and if necessary, a currency conversion will take place. This applies only if you are sending USD to an account that accepts a different currency and the payee has requested a different currency.

Hopefully, the cross-border payment is using banks that support international payments. If so, the transaction is more likely to be approved. A global payments platform excels in intelligently routing the payment through a bank that is most likely to approve the transaction.

 

4 & 5. Confirmation (Approval or Denial) and Fulfilment

·       User will receive confirmation that the transaction has been approved or declined.

·       If declined, user’ll receive a return code outlining why it wasn’t processed.

·       If approved, user order then goes into the fulfilment.

6. Settlement

·       At this point, depending on the type of cross-border payment user’ve used, there’s a good chance the funds will still appear in user account and not in the payee’s.

·       A Global Automated Clearing House (ACH) payment takes anywhere from two to five days to reconcile.

7. Tracking

·       User will receive a reconciliation report from each bank that you work with. This can be extremely confusing and is an inefficient way to keep track of user cross-border payments. With a global payments platform, user can receive a consolidated reconciliation report showing all payouts through all banks and which transactions have been reconciled, as well as which ones have not.

Senior Advisor says that, in order to perform cross-border payments correctly, businesses must have their Account Payable (AP) department integrate multiple extra steps and controls into their cross-border payment management strategy.

·       An example of an extra step would be to implement a practice that validates the accuracy of payment data. And with more than 26,000 global payment rules impacting cross-border payments, using a global payment platform that checks payments against these rules is of the maximum importance.

·       Any business that wants to sell or acquire products and services on a global basis should integrate cross-border payments into its AP practices. Not every payment gateway can process international payments, making it crucial to use one that can. More so, using one that has extensive knowledge of navigating the cross-border payment ecosystem can help make your operations as efficient as possible.

5 Types of Cross-Border Payments

There are multiple global payment methods to choose from. When making payments to overseas affiliates, the supplier chooses a preferred method and then user are responsible for paying according to that method. This is why user should use a global payments platform that supports multiple payment options. More importantly, choose one that allows to make multiple payments simultaneously, even when they are in different formats and currencies.

1. International Wire Transfers

·       This type of global payment provides an immediate exchange of funds but usually comes with a transfer fee that often exceeds $50. For a $500 wire transfer, a $50 fee would be 10% of the total transfer. For a $20,000 transfer, the $50 fee may be more reasonable.

·       Wire transfers are not ideal for large payment volumes due to their steep transaction cost. They also come with limited traceability. Since routing rules vary from country to country, wire transfers are not an efficient option for global business-to-business (B2B) transactions.

2. International ACH

·       Commonly referred to as a Global ACH (Automated Clearing House), an international ACH makes it simple to make payments to overseas suppliers and affiliates.

·       Global ACH payments can be made through various entities, including SEPA (Single Euro Payments Area), BACS (Banker’s Automated Clearing Services), and local banks, but are not carried out via a card network.

·       They are inexpensive and extremely convenient. The downside to Global ACH payments is that they can take several days to process. Due to their low transaction fees, they are ideal for making large volumes of payment and are very simple to set up on a recurring basis.

User must have the payee’s International Bank Account Number (IBAN) and other account information to make a Global ACH payment. Keeping up with each payee’s account information can be overwhelming without a global payment’s platform.

 

3. Prepaid Debit Cards

·       Also known as cash cards, prepaid debit cards make it simple to pay international affiliates. User funds are automatically deducted from User account and transferred to the payee’s debit card account.

·       Prepaid debit cards are processed over a card network and provide immediacy, which is of immense value when user need to make a quick payment to a global supplier. The transactions often come with a fee for both the payer and payee.

·       To withdraw funds from the prepaid debit card, the payee will likely have to pay an ATM fee and there is a confusing reconciliation process.

·       Most importantly, the transactions are not covered by national consumer protection laws. They are, however, beneficial for making payments to global affiliates who operate in a country with limited banking infrastructure.

 

4. PayPal

·       There are two main drawbacks of making global PayPal payments:

o  They come with a high transaction fee, and there is no clear policy outlining how funds are held.

o  User may have one payment clear instantly, while another one to the same entity takes multiple days.

o  Using a global payments platform that supports mass payments with PayPal is an effective way to enhance the payment experience and can reduce up to 80% of the PayPal payables workload.

5. Paper Checks

·       When a global affiliate is unable or unwilling to provide bank routing information, user can use a paper check to make an international money transfer.

·       All user need is the payee’s name and an address to mail the check. This type of payment method doesn’t always come with a transaction fee depending on the financial institutions and mediators involved, making it extremely economical.

·       However, it may be weeks before the check is received through postal mail and cashed, which can negatively impact user cash flow management. Paper checks are also prone to fraudulent activity.