The cross-border payments industry is "ripe for disruption", with distributed ledger technologies leading the charge, according to a blog post published by the World Bank.
The post, authored by Rodrigo Mejia-Ricart, research and public policy analyst at the United Nations, Camilo Tellez, head of research and innovation at the Better than Cash Alliance, and Marco Nicoli, senior financial sector specialist at the World Bank, notes that traditional B2B cross-border payments tend to be slow and opaque, which affects the business and cost structure of remittance service providers.
"Moving funds through the current corridors requires transferal through the relevant domestic payment systems, which often have different operating hours and are located in different time zones," the authors state. "For certain corridors, the funds must be routed through several banks and intermediaries before they reach their destination, leading to higher fees and slower payment settlement."
The paper suggests that the use of distributed ledger technology could help bring down remittance costs and improve compliance, citing innovations from the likes of Ripple, Circle, Swift, Visa, and JPMorgan as prime examples of the push for innovation within this space.
Nonetheless, two potential stumbling blocks to wider uptake are identified:
- A framework is needed for DLT solutions to be adopted across multiple jurisdictions. Today, regulatory uncertainty and mistrust in DLT-based solutions, in part due to confusion between crypto-assets and their underlying DLT technology, are impeding the development of such a framework.
- It remains unclear if DLT-based solutions will be able to outperform other technologies available in the payments space, with questions and concerns remaining unresolved on key issues such as security, governance rules for protocols, recourse mechanisms for users, privacy, and scalability, among others. For example, as fast payments are increasingly adopted to facilitate real-time domestic payments, solutions like SWIFT GPI could allow links between domestic fast payments systems, achieving real time and low cost transfers across borders.
"Whether DLT will be an effective solution to the challenges the remittances industry faces , and when the technology will reach sufficient scale to effectively disrupt this space, remain to be answered," the post concludes. "In any case, there is ample opportunity - and of course need, - for innovation in the cross-border payment industry. Without more innovation, it will be difficult to achieve international targets such as the SDGs, and to minimise the cost of remittances while maximizing transparency and safety in the market."