Exploring Stellar Blockchain in Cross-Border Payments

With the increase in people migrating to different countries, the number of cross-border payments has increased. According to the World Bank, about $630 billion was sent in remittances to low- and middle-income nations in 2022. It is expected that the value of cross-border payments to reach over $250 trillion by 2027. However, hefty fees, averaging 7-8% (and up to 15% for developing economies), and prolonged processing times persist through various intermediaries. Here, Stellar blockchain can be used as a solution with its high-speed and low-cost transactions. In this article, we explore how Stellar blockchain development services can solve various challenges in cross-border payments. 

Challenges with Traditional Cross-Border Transactions

Most international money transfers pass through the SWIFT (Society for Worldwide Interbank Financial Telecommunication) system. SWIFT ensures the safety of financial transactions among its members by transferring detailed instructions, rather than transferring money itself, from the paying bank to the receiving bank. Even after five decades in operation, SWIFT remains slow and costly. International money transfers heavily rely on SWIFT as an intermediary, incurring fees that elevate transaction costs. Consequently, it may take 3-5 business days for funds to reach the recipient. Stellar blockchain aims to establish a faster alternative, circumventing these delays and expenses. Suggested Read | Addressing Challenges of Cross-Border Payments with Blockchain

Understanding Stellar for Cross-Border Payments

Stellar is an open-source blockchain that enables international payments. Its native digital currency is Lumen (XLM), which enables users to set up their account and transaction processing within the Stellar network. Created to minimize cross-border payment barriers, Stellar aims to promote financial inclusion and establish a new global payment standard. You May Also Like | Exploring Stellar Blockchain for Fintech Solutions

Built-In Features of Stellar

Let us understand the built-in features of Stellar: 

• Speed: Stellar ensures swift confirmation of transactions, typically within five seconds, offering an efficient environment for financial operations
• Cost: Stellar performs transactions with negligible transaction fees, averaging just over .000002 XLM per transaction.
• Scalability: The network is capable of processing up to 1000 transactions per second (t/s), rivaling the volume managed by SWIFT. Since its inception in 2015, the network has impressively handled over 13 billion operations. 

Also, Explore | Understanding Soroban | Stellar Smart Contract Platform

How Stellar Simplify Global Payments Without Intermediaries 

Stellar establishes a seamless, blockchain-powered payment infrastructure and collaborates with local partners known as anchors. These anchors serve as entry and exit points for various global currencies on the Stellar network. Much like SWIFT, Stellar employs a standardized protocol. The network ensures consistent communication among all participants. Businesses using Stellar can transfer traditional currency to an anchor, which then facilitates a streamlined conversion to the recipient's local currency. This converted value is smoothly delivered through a local anchor in the recipient's region. This entire process eliminates the necessity for intermediary banks. Both the service provider and the buyer can conduct transactions in their respective local currencies. Essentially, Stellar transforms the complex processes of international wire transfers and currency conversion by integrating them into a single, direct pathway. Check It Out | Ripple and Stellar Blockchain Solutions in Banking

What Does Stellar Offer in Cross-border Payments 

Here are the use cases of Stellar in the payment sector:

Remittances

Stellar facilitates seamless transactions between individuals. It ensures swift coverage of everyday expenses.

Global Payroll

Stellar's platform allows for payroll distribution in local currencies without imposing minimum transaction requirements. It enables businesses to pay employees globally more efficiently.

Treasury Management

Stellar manages liquidity in operating accounts without pre-funding them. It provides better financial agility and effective treasury management for organizations using Stellar's network.

Also, Check | Stellar Launches Smart Contracts: Soroban Now Live on Mainnet

Business Invoicing

Employing Stellar, enterprises can issue invoices to suppliers and other businesses without the need for pre-funding accounts. This simplifies and expedites the invoicing process.

Merchant Settlement

It expedites payouts and effortlessly converts funds back to a single operating currency for seamless merchant settlements.

Social Payouts

Stellar facilitates the issuance of partial or full payments for grants, aid, and government services. It ensures a streamlined process for social payouts.

Enterprise Payouts

Stellar improves the efficiency of enterprise-level payments. With Stellar, businesses can easily reconcile corporate payouts without the need for pre-funding accounts.  Also, Discover | Idris Elba's Stellar Journey Towards Human Empowerment

Conclusion 

The financial ecosystem must adopt Stellar-based blockchain solutions to revolutionize cross-border payments. Embracing this approach will enhance security, minimize risks, and elevate international transactions to new heights with secure, real-time, and cost-effective transfers. If you are interested in tapping into the potential of the Stellar network, then connect with our blockchain developers to get started.