Cross-border payments are integral to global trade and finance, enabling businesses and individuals to transact across international borders. Traditionally, these transactions have relied on correspondent banking networks, which can be slow, costly, and opaque. However, the emergence of cryptocurrencies offers financial institutions an alternative method for facilitating cross-border payments, promising increased speed, reduced costs, and enhanced transparency.
How Traditional Banking Handles Cross-Border Payments
Traditional cross-border payments rely on an extensive network of correspondent banks, clearing houses, and financial institutions. The process follows these key steps:
- Initiation: The sender’s bank initiates the transfer, debiting the sender’s account and submitting the payment request.
- Intermediary Banks: Funds move through multiple intermediary or correspondent banks, which verify and process the transaction. Each intermediary charges a fee for handling the transfer.
- Currency Conversion: If different currencies are involved, foreign exchange conversion is required, often at less favorable exchange rates.
- Final Settlement: The recipient’s bank credits the funds to the recipient’s account after processing compliance checks, which can add delays.
This system is slow, costly, and lacks transparency. On average, traditional international wire transfers take 1–5 business days and involve multiple fees, including:
- Transaction Fees: $25–$50 per transfer, depending on the bank and region.
- Foreign Exchange Markup: Banks typically add a 1%–3% markup on currency conversion.
- Intermediary Bank Fees: Additional fees may apply when multiple banks are involved
