25 January 2024

Redefining Cross-Border Payments with Stablecoins

Explore the impact of stablecoins on cross-border payments: a faster, cheaper alternative to traditional banking for global payments.

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Redefining Cross-Border Payments with Stablecoins

    Index

    The Rise of Stablecoins
    The Payee’s Perspective
    Comparing Payment Flows
    The Cost and Time Efficiency
    Conclusion

The financial industry is experiencing a paradigm shift with the advent of stablecoins in the realm of cross-border payments. As businesses and individuals seek more efficient ways to send money across borders, stablecoins are emerging as a compelling alternative to the traditional correspondent banking system.

The Rise of Stablecoins

Stablecoins, particularly those pegged to USD, are redefining how payers and payees handle international transactions. Unlike conventional banking methods, stablecoins offer faster settlement times and freedom from the constraints of banking hours. For instance, a US company can now effortlessly pay a South African supplier in USD stablecoins, avoiding the complexities and fees associated with foreign exchange.

Digital asset custodians further streamline the process by offering stablecoins in multiple currencies through a single platform. This development is not only convenient but also opens doors to a global market for businesses of all sizes.

The Payee’s Perspective

For recipients, the benefits of stablecoins are equally significant. The simplicity and reduced risk of holding USD stablecoins often outweigh the traditional method of maintaining foreign currency accounts. Moreover, the reception of USD or other significant currencies as stablecoins can be financially more stable than dealing with local currency fluctuations.

Comparing Payment Flows

The advantages of stablecoins become even more apparent when directly comparing the traditional banking payment flow with that of stablecoins. The two diagrams, illustrating each method's process, showcase the stark contrasts in cost and time efficiency.

In the traditional model, intermediary banks levy various fees, culminating in a total cost of 4.3% of the transaction amount. The process is also time-consuming, taking up to 5 days if a weekend is involved.

Conversely, a stablecoin payment flow with NOAH is not only quicker, with settlements achievable within 1 day, but also considerably cheaper, with total costs amounting to just 1% of the transaction value.

The Cost and Time Efficiency

By adopting stablecoins, a payer could save approximately 3.2% in transaction costs. For a notional amount equivalent to BRL 100,000, this represents a savings of around USD 382. The time saved is equally substantial, with the potential to reduce the transaction window from 5 days to as little as 1 day, a crucial factor for businesses where cash flow is king.

Conclusion

Real-world data makes it clear: stablecoins provide a more efficient, cost-effective, and faster way to handle cross-border payments when compared to the traditional correspondent banking system. While traditional banking provides a secure and regulated environment, the agility and financial benefits of stablecoins cannot be ignored.

As the financial sector evolves, the adoption of stablecoins could signify a shift towards a more interconnected and efficient global economy. The reduced costs and time, coupled with the flexibility and simplicity of transactions, highlight how stablecoins have the potential to transform the landscape of cross-border payments, redefining the way we approach and carry out these transactions.

Please be aware that: Cryptocurrencies are unregulated in the UK; Cryptocurrencies are not protected under Financial Ombudsman Service or Financial Services Compensation Scheme (FSCS); Profits may be subject to capital gains tax; The value of investments can go down as well as up.

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