Should Banks Use Cryptocurrency for Cross-Border Transactions? - Pros and Cons
by Mary Ann Callahan
The online remittance and cross-border transaction market is incredibly important. People need to send money across borders for a variety of different reasons - from paying certain bills to sending money back home to their families. The market is worth hundreds of billions of dollars and will only continue going forward.
However, this industry has long been plagued by large fees and relatively inefficient processes that can greatly delay the transaction speed. This can make it a real headache to send any money across borders. However, people simply give in to these inconveniences or added costs as there are no other options for most of them.
But don’t worry, there is a potential solution, and this solution is cryptocurrency. While the market slowed down after Bitcoin’s price had tested its long-awaited $8,000, there is still a ton of excitement around the benefits of blockchain and crypto - especially when it comes to banking and cross-border transactions. Recently, the central banks of both Canada and Singapore have made the first successful trial of cross-border payments using cryptocurrency. This is a huge step and one that could eventually lead to something like this becoming a new standard.
However, before we declare cryptocurrency and blockchain as the solution for cross-border payments and transactions, it is important that we look at both sides. Sure, there are many positives, but also some negatives or potential issues that need to be looked at. With that in mind, this article is going to look at the pros and cons of banks using cryptocurrency for cross-border transactions.
Pros come first
One of the largest gripes that most people have when sending cross-border transactions is how expensive they can be. When you add up all fees and middleman commission, the fees for the transaction can sometimes be around 10% of the amount or higher! That is a big sum and can really make a large dent in your budget. In addition to things like currency conversion fees, you also have third-party companies that take a cut for doing their part in the transaction.
Using cryptocurrency will bring these costs down greatly. These transactions can be made for much lower fees. This is because cryptocurrency is borderless and doesn’t need to be converted (unlike when you transfer USD to CAD), which will save you even more. The average cryptocurrency transaction fee can be around $1 at the highest.
Faster and More Efficient
Next to the high costs, the speed of fiat cross-border transactions is likely the biggest complaint. Because of all of the third-party authorizations that need to take place with traditional transactions, the process can be sluggish and inefficient. If you want to send money from the USA back to your family in the Philippines, for example, the money will have to be transferred numerous times through a number of bank accounts and networks. This process can take multiple days, which isn’t the best way if you need the money to be sent fast.
If cryptocurrency becomes the standard for remittances and other transfers, it will be much faster and more efficient. Crypto transactions don’t take days to be sent, and in fact, many of them are instant. Also, without the need to stop by so many middlemen, the overall process as a whole will be much faster.
There Are Still Cons
Large Barriers to Entry
While the idea of using crypto for cross-border payments has benefits, it is also quite ambitious right now. The overall adoption of cryptocurrency is still low, so simply not enough people use it to make it viable as a solution. Also, banks are notorious for resisting change and innovation. They are strongly tied to traditional processes and measures. While they are not free from major issues like we mentioned earlier, they are what most people know and trust.
Blockchain and crypto would provide amazing benefits and surely take the industry forward, it would also involve a lot of change. Re-training people and re-working key processes would be required though. So, while this isn’t a typical “con” per se, many people and banks may not fully trust or understand the technology, which might not make it the best choice right now. Until crypto is adopted and trusted by more people, it won’t make a great option for cross-border transactions.
Potential Security Risks Associated with Crypto
While cryptocurrency can be just as secure (if not more so) than traditional types of funds, it often finds itself in the headlines for all the wrong reasons. Billions of dollars of cryptocurrency have been stolen or misplaced recently, and many hackers are now completely focused on the crypto space. The security risks like these could make cryptocurrency a hard sell.
For example, if a crypto service goes down, is hacked or suffers another security event, your funds could potentially be lost. With no central authority in place to regulate cryptocurrency, if an attack takes place during your transfer, you are not protected. And the money you so desperately needed to send could be lost.
The entire crypto industry as a whole is still in sort of a “Wild West” stage, in which regulations or centralization are few and far between. Many of those sending cross-border payments need to ensure the money gets there and isn’t lost or stolen. Sure, regulation adds a bit of cost to the cross-border transaction, but it will ensure this is legitimate and not fraudulent.
To Sum It Up
In conclusion, hopefully this article has been able to help you understand the pros and cons of using crypto for cross-border transactions. While cryptocurrency would certainly speed up these transactions and make them more affordable for all, banks have established practices, processes, pipelines and methods that could be hard to adjust, thus making many banks apprehensive to the idea. Add in potential security risks and you can see there are some roadblocks that need to be traversed before banks will use crypto for cross-border transactions on a large scale.
About the author
As an expert on Bitcoin-related topics, I've found myself as a Journalist at Cex.io - cryptocurrency exchange. I'm working on articles related to blockchain security, bitcoin purchase guides or bitcoin regulations in different countries.