Cross-border payments are integral to global trade and finance, enabling businesses and individuals to transact across international borders. Traditionally, these transactions have relied on correspondent banking networks, which can be slow, costly, and opaque. However, the emergence of cryptocurrencies offers financial institutions an alternative method for facilitating cross-border payments, promising increased speed, reduced costs, and enhanced transparency.

How Traditional Banking Handles Cross-Border Payments

Traditional cross-border payments rely on an extensive network of correspondent banks, clearing houses, and financial institutions. The process follows these key steps:

1. Initiation: The sender’s bank initiates the transfer, debiting the sender’s account and submitting the payment request.

2. Intermediary Banks: Funds move through multiple intermediary or correspondent banks, which verify and process the transaction. Each intermediary charges a fee for handling the transfer.

3. Currency Conversion: If different currencies are involved, foreign exchange conversion is required, often at less favorable exchange rates.

4. Final Settlement: The recipient’s bank credits the funds to the recipient’s account after processing compliance checks, which can add delays.

This system is slow, costly, and lacks transparency. On average, traditional international wire transfers take 1–5 business days and involve multiple fees, including:

• Transaction Fees: $25–$50 per transfer, depending on the bank and region.

• Foreign Exchange Markup: Banks typically add a 1%–3% markup on currency conversion.

• Intermediary Bank Fees: Additional fees may apply when multiple banks are involved

How Cross-Border Crypto Payments Work

Cryptocurrencies operate on decentralized blockchain networks, allowing for peer-to-peer transactions without the need for intermediaries. In the context of cross-border payments, this means that funds can be transferred directly between parties in different countries, bypassing traditional banking channels.

When a financial institution facilitates a cross-border crypto payment, the process typically involves the following steps:

• Conversion to Cryptocurrency: The sender’s fiat currency is converted into a cryptocurrency, such as Bitcoin or a stablecoin pegged to a fiat currency.

• Transfer Over Blockchain: The cryptocurrency is transferred to the recipient’s wallet address over the blockchain network.

• Conversion to Local Currency: The recipient converts the cryptocurrency into their local fiat currency, either through a financial institution or a cryptocurrency exchange.

This process can significantly reduce the time and cost associated with cross-border transactions.

• Transaction Speed: Crypto payments settle within minutes to an hour, depending on network congestion.

• Lower Fees: Transfer costs range from $0.50 to $5 for most blockchain transactions, a fraction of traditional bank fees.

• Greater Transparency: Unlike traditional banking systems, blockchain transactions provide real-time tracking and verification.

By leveraging cryptocurrency, financial institutions can provide faster, cost-effective, and more efficient cross-border payment solutions. As regulatory clarity improves and blockchain adoption expands, crypto-based payments are set to reshape the global remittance industry.

Adoption by Financial Institutions

Financial institutions are increasingly exploring the use of cryptocurrencies for cross-border payments. A survey by PYMNTS.com found that 58% of multinational firms are already using at least one form of cryptocurrency. 

Moreover, traditional financial services companies are entering the crypto space. For example, PayPal has launched its own stablecoin, and Visa is developing the Visa Tokenized Asset Platform to facilitate digital asset transactions. 

Benefits and Challenges of Crypto-Based Cross-Border Payments

The use of cryptocurrencies for cross-border payments offers several benefits:

• Speed: Transactions can be settled in near real-time, reducing the delays associated with traditional banking systems.

• Cost: By eliminating intermediaries, transaction fees can be significantly lower.

• Transparency: Blockchain technology provides a transparent and immutable ledger of transactions, enhancing traceability.

However, challenges remain:

• Regulatory Uncertainty: The regulatory environment for cryptocurrencies varies by jurisdiction and is continually evolving.

• Volatility: Cryptocurrencies can experience significant price fluctuations, which may pose risks in transaction value.

• Security: Ensuring the security of digital assets and compliance with anti-money laundering (AML) and know-your-customer (KYC) regulations is critical.

What’s Next for Crypto in Cross-Border Transactions

Cryptocurrencies are transforming cross-border payments by offering faster transactions, lower costs, and greater financial accessibility. As financial institutions explore blockchain-based solutions, the focus must be on security, compliance, and efficiency to ensure seamless adoption.

Secure custody solutions are essential for protecting digital assets and ensuring regulatory compliance. Institutions need enterprise-grade custody services to prevent fraud, safeguard funds, and meet anti-money laundering (AML) and know-your-customer (KYC) requirements. Without a secure custody framework, managing crypto transactions at scale becomes a challenge.

Tokenization of real-world assets (RWAs) enhances liquidity and enables faster settlements. By converting fiat currency, securities, or commodities into blockchain-based tokens, institutions can streamline cross-border trade, improve capital efficiency, and reduce counterparty risks. Tokenization also allows for programmable compliance, ensuring seamless integration with existing financial systems.

Blockchain-based remittance and payment solutions provide a faster, cost-effective alternative to traditional banking channels. By leveraging stablecoins and on-chain settlement mechanisms, institutions can process global payments instantly while minimizing foreign exchange risks and eliminating intermediary fees.

As the regulatory landscape evolves, financial institutions must adopt enterprise-grade blockchain infrastructure to remain competitive. ChainUp provides secure custody, tokenization, and blockchain infrastructure to help institutions streamline global transactions. Contact us today to explore how our solutions can optimize your cross-border strategy.