Enabling lightning-fast and easy cross-border payments

Cross-border payment volume continues to increase year on year. International trade continues to rise - even despite discussions of protectionism.  Previously unbanked populations are gaining access to modern financial tools and SMEs are seeking to expand to new markets sending payments to – often several - new countries and in new currencies. As a result, international transfers are expected to grow by five per cent a year until 2027. 

Unlike domestic payments, however, international payments tend to be slow, expensive and heavily reliant on correspondent banking networks. Given this together with the expected growth in cross-border payments, the space is clearly overdue for transformation. The good news is that this transformation is already well underway, with innovations in digital-native assets like Bitcoin showing the potential to disrupt the sector in a number of ways.

Growing number of channels

Recent developments such as the growing availability of digital currencies, greater efficiencies, and the liquidity of on/off ramps have enabled easier interchanges into local fiat currencies and opened up greater accessibility. The growing number of channels now available for transferring value between digital and traditional finance, means there is no longer a need to rely solely on traditional banking systems.  

Consider, for instance, advancements in technology like the Bitcoin Lightning Network which, by making microtransactions feasible and economically viable, are essentially enabling borderless payments with no minimum amount. 

The Bitcoin Lightning Network

In simple terms, the Lightning Network is a new kind of decentralised payments network that allows parties to transact Bitcoin quickly, cheaply, and privately. Built on top of the Bitcoin blockchain, but using Bitcoin as the underlying asset, it enables instant and near-free transactions across all major currencies. Users can make micropayments for as little as the smallest unit of Bitcoin, the Satoshi, with cash, send it via the Lightning Network, and then sell it back into cash – instantly. 

Payments can be made between different cities, in different countries, on different continents, using different apps, at any time of the day or night. And, in contrast to legacy networks, where cash payments can remain ‘pending’ for days at a time, leading to unnecessary costs and stress for merchants and individuals, payments made on the Lightning Network can be effectively ‘streamed’ in real-time for minimal fees. 

Evolving technology

Instant payments are nothing new, of course. Their growth may have accelerated over the last five years, but their evolution began as far back as the introduction of Pay UK’s Faster Payment Service in 2008. Since then, we’ve seen the launch of the European Payment Council’s SEPA Instant Credit Transfer scheme (EPC SCT Inst) in 2017, Banco Central do Brasil’s PIX and, most recently, the US Federal Reserve’s FedNow Service. 

Emerging markets, though, outpace their developed counterparts when it comes to the growth of real-time or instant payments. Often less constrained by a legacy of regulation and more willing to embrace new technologies and systems, many countries are hotbeds for innovation. For instance, some of the most exciting developments in this space are happening in Africa with the mass adoption of digital payments where, across East Africa alone, more than 51 million customers currently make over $314 billion in transactions per year through Vodafone and Safaricom’s M-PESA service. 

Education and trust

Despite this ongoing innovation, many of these faster payment solutions are limited by the fact that they have their roots in the traditional financial system, which is inherently limited by geographical boundaries.

Payment technologies like the Lightning Network remove those barriers, allowing for fast, cheap, and easy cross-border transactions. But their adoption at scale is still just beginning. Education and trust in their use are essential to unlocking their potential to transform the increasingly popular cross-border payment space.