When cryptocurrency proponents talk about how it can turn traditional finance into obsolete finance, cross-border payments are inevitably the first thing they mention.

There are reasons. SWIFT has left sending money from one country to another expensive, slow to the point of days and unavailable 24/7. It’s kind of ridiculous in an age where you can buy anything from a quilt to a car from your smartphone at 4:30 a.m. on Sundays. And it will only get worse as real-time payment tools like FedNow and The Clearing House’s RTP network come online.

Cross-border payments have also not been a bugaboo from crypto enthusiasts. Particularly on remittances, there has been a lot of interest and advocacy, ranging from MoneyGram to the United Nations, which made reducing remittances a sustainable development goal four years ago. .

So why haven’t cross-border crypto payments yet taken place at scale?

Easy in theory

Sending cryptocurrencies like bitcoin or stablecoins like USD Coin or Tether’s USDT from one wallet to another is quick or instantaneous, with fees ranging from a few dollars (on bitcoin’s crowded and expensive network) to pennies or even fractions of a penny. for tokens like Algo from Algorand, Lumens from Stellar, XRP from Ripple or even bitcoin on the Lightning Network.

And they don’t see borders. San Diego to San Francisco is no different from San Diego to Sweden.

Ripple, which is aimed at banks performing back-end transactions, has mastered the basic technique. Users can buy XRP tokens in the amount to be sent, transfer them from one wallet to another and immediately sell XRP for the local currency. The process is so quick that even wild crypto price volatility has no noticeable impact.

Stablecoins make the process even easier, but they are beyond the control of central bankers, who fear letting people avoid fiat currencies altogether — which is both a domestic and cross-border problem. This is why European Union legislation on crypto-asset markets (MiCA) will cap stablecoin transactions at $200 million per day. And there are very serious stability issues, especially since the Terra/LUNA stablecoin ecosystem collapsed in May, taking $48 billion with it.

Barriers to climb

So what is the problem?

On the one hand, there is the real complexity of do-it-yourself crypto transactions. Managing digital wallets, trading exchanges, etc., is a hurdle that requires instruction and some degree of tech savvy to master.

A bigger problem is regulation and the lack thereof. Sending a crypto wallet to the wallet is easy. Unhook it in fiat is not. Payment processors and Money Services Businesses (MSBs) are needed, as heavily regulated banks are still reluctant to get involved until an actual legal framework is in place.

Anti-Money Laundering (AML) compliance is also an area of ​​growing interest for regulators, and businesses looking to use crypto for cross-border retail payments need clarity and certainty.

Growing competition

The fear of stablecoins is a big factor in the explosion of interest in central bank digital currencies (CBDCs) over the past few years. About 100 countries, including all major economies, are considering, testing, or building CBDCs. In the United States, President Joe Biden’s executive order calling for a comprehensive crypto regulatory framework requires a recommendation from the CBDC, and the European Central Bank (ECB) has pushed aggressively for one.

In June, the Bank for International Settlements (BIS) – a big proponent of fixing cross-border payments – released a report that said, “Our overall conclusion is summed up in the motto: ‘All that crypto can do, CBDCs can do better”. ‘”

Read more: BIS says CBDCs can do everything crypto can do, but better

There has been a growing focus, and many regional tests, on how to make CBDCs work across borders, which would solve speed and cost issues as well or probably better than cryptocurrencies – if it can be made to work technologically and politically.

However, SWIFT does not stand still. In April, she joined The Clearing House and EBA Clearing to launch a real-time cross-border payments pilot program.

See more : Launch of a pilot project for real-time cross-border payments by EBA, SWIFT, TCH

“In addition to providing a simple and transparent service to end users, our main objective is to make things easier for financial institutions,” said the EBA’s head of service development and management. Erwin Kulk at the time. “The fact that there is no need to connect to a separate payment system should make the service very attractive.”

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