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Empowering Financial Inclusion: Blockchain’s Impact on Cross-Border Payments

Empowering Financial Inclusion: Blockchain’s Impact on Cross-Border Payments

RootstockLabs’s recent webinar on remittances and blockchain technology brought together a panel of experts from the fintech industry, to explore remittances through the lens of blockchain technology and how businesses can leverage this technology to expand their offerings and connect unbanked populations and individuals around the globe.

Lancen LaChance, product manager at RootstockLabs, led the discussion that dived into various aspects, including challenges in traditional remittance systems, the role of blockchain, and opportunities for financial inclusion.

Watch the discussion on YouTube, and read some of the key highlights from the conversation below.

The cost of having siloed banking systems

The webinar started by shedding some light on the challenges of traditional remittance systems.  The discussion highlighted the inefficiencies stemming from the diverse financial infrastructures across different countries, creating complexities in cross-border transactions.

“ [Banking systems] operate differently in each country, and I think that’s a big challenge of the existing system. Even though there are similarities among central banks on a regulatory perspective, they establish different rules to move money to manage liquidity to manage transaction.”

Daniel Chang, CEO of Beta Ramps

Additionally, the penalists highlighted the challenges caused by international correspondents serving as intermediaries, especially in payment corridors like Africa.

“If we look at the financial flows, which do not consider the end beneficiary, we see that 40% of the financial flow from Africa goes to United States. So that means if a business in Botswana is sending money to another business in Zimbabwe for instance, chances are the money will probably go to the USA first and then will be settled in Zimbabwe. There are two main downside of it: First is the cost. So considering we have multiple intermediaries receiving a cut from the transaction to validate and do all the process. And the second side is the time delay”

Daniel Chang, CEO of Beta Ramps

The panelists emphasized the need for a global system that unifies the infrastructure to enhance the speed and efficiency of remittances.

Migrants and digital nomads are driving the need for better cross-border payments

The panel emphasized the concept of financial inclusion evolving beyond traditional borders. The discussion touched upon the changing dynamics of citizenship and the rise of digital nomads, who may not be attached to a specific geographic location, and its financial regulations. This shift presents an opportunity for blockchain technology to cater to the financial needs of individuals without fixed national affiliations, offering inclusive solutions.

“We allow people from everywhere in a Latin America to get paid while they’re working or they’re offering digital services to other places of the world. For us, the biggest challenge is how can we build a financial infrastructure that could provide a seamless experience but also could attach the complexity around the AML, compliance, financial regulations in each country, and all the complexities around these kinds of transfers.”

Lucas Posada, CEO of Takenos

The panel highlighted the seamless experience users have when they’re making local transactions contrasting sharply with the significant degradation observed in transactions across different countries. And with consistent migration to work, study, and have a better life, the need for better cross-border remittances is growing.

“In Latin America, [real-time payments] are really important in [the aspect of] remittances, or near real-time payments. So, if we don’t have the correct infrastructure or the correct channels, we have to wait one day, or six hours or something like that. And that’s a challenge. People are looking for real-time remittances and we are all working for that.”

Amparo Nalvarte, CEO of B89

Stablecoins can solve the issue of volatility and settlements

The panelists discussed the potential of leveraging blockchain infrastructure to offer real-time payments, addressing a crucial demand from users. Blockchain’s ability to provide on-demand liquidity without the need for extensive capital allocation in foreign exchange currencies was highlighted as a significant advantage for fintech companies.

“I believe that blockchain offers an opportunity to remittances in two aspects. The principal aspect is [use of] stablecoins. I believe that is a very good solution because otherwise, if you use Bitcoin in order to make transfer, maybe the volatility of the price could be an issue for people trying to do remittances… the other part of the coin is the use of blockchain technology for settlements, and that’s another incredible thing that blockchain can give us today.”

Emilio Monzó, CFO of N1U

Connecting fintech infrastructure with blockchain technology

The panelists discussed how smart contracts, particularly through the RIF remittance escrow service, could play a vital role in addressing regulatory requirements, compliance, and security. The decentralized nature of smart contracts enables a transparent and auditable process, ensuring that transactions adhere to regulatory standards. Lancen LaChance identified as a key development in creating a secure and trustworthy remittance network saying:

“We have sending organizations that are connecting to users or potentially businesses, and receiving organizations connecting to receiving users, beneficiaries, and businesses. And a lot of these components are traditional fintech infrastructures, but we’re starting to plug them into the smart contract capabilities within the rootstock chain with the RIF remittance escrow service.

This is an intermediate decentralized service that will aim to help both secure transfers of funds compliance requirements, regulatory requirements, audibility requirements, and trust requirements of the participants of this network, and allowing sending receiving organizations in different countries to more easily access pay-in and pay-out destinations within this ecosystem and helping to facilitate easy transactions transfers to Fiat on both ends of the architecture.”

Lancen LaChance, Product Manager at RootstockLabs

The way to mass adoption starts today

In the closing segment, the panel stressed the importance of fintech companies thoroughly evaluating the viability of blockchain technology for their specific needs.

Key considerations included the level of adoption within the community, technological aspects such as transactions per second (TPS), congestion management, network fees, and overall security and governance. The discussion highlighted the need for a comprehensive assessment before integrating blockchain solutions into existing fintech infrastructures.

“The new technology is going to be adopted at some point. Maybe today we have a short-term view and we want blockchain to be the main technology to be applied to all the financial infrastructure, but it takes time to change the status quo. But at the end, I believe that in a few years this is going to be the mainstream technology [enabling] transactions across the globe.”

Emilio Monzó, CFO of N1U

Download the research report on remittances for an in-depth analysis of the remittance industry and the impact of blockchain technology on making global payments cheaper, faster, and more inclusive.