Crypto is a rapidly emerging key player in the global financial landscape. More and more people have been using crypto for cross-border payments in recent years, taking advantage of its speed, efficiency, accessibility, security, and cost-effectiveness compared to traditional banking methods and other forms of international payments.
If you’ve heard about the advantages of crypto transactions and are interested in learning how to use crypto for cross-border payments, this is the perfect resource for you.
What Are Cross-Border Payments?
A cross-border payment refers to the process of transferring money or assets from one country to another, usually done by an individual or organisation. It encompasses a wide range of transactions, including commercial payments made by businesses for international trade, payments for services, and investments across borders.
This concept dates back to ancient times when traders and merchants engaged in barter trade across regions. Later, with the establishment of banking institutions and the introduction of different national currencies, these transactions evolved, involving currency exchanges and bank-mediated transfers.
The world has seen an extraordinary increase in cross-border payments in the last few years, fueled by the globalisation of trade, capital, and migration. In fact, it’s anticipated that cross-border payments will soar from US$190 trillion in 2023 to US$290 trillion by the year 2030.
The Challenges With Traditional Cross-Border Payments
Despite advancements, traditional cross-border payments have faced challenges like high transaction fees, slow processing times, and fluctuating exchange rates. These issues particularly affect remittances, where individuals send money to their home countries, often encountering hefty fees and delays.
Using Crypto for Cross-Border Payments
Bitcoin’s launch in 2009 and the rise of alternative coins opened doors in the financial landscape and addressed many challenges in traditional cross-border payments. The decentralised nature of crypto meant lower fees, as there were no banks or financial institutions involved to levy charges. The speed of transactions improved significantly, with transfers being completed within seconds to hours, instead of days.
Moreover, the universal nature of crypto enabled a unified medium of exchange, bypassing the complexities of currency conversions. This aspect was especially appealing for countries with less stable currencies or stringent currency control regulations.
The Growth of Crypto in Cross-Border Transactions
The use of crypto for cross-border payments has seen substantial growth as years passed, particularly in countries with limited access to traditional banking services or where remittances form a significant part of the economy. The ease of setting up a secure crypto wallet, as opposed to opening a bank account, provided financial inclusion for the unbanked population.
How to Use Crypto for Cross-Border Payments
The procedure for making cross-border payments using crypto may vary based on the specific platform you will use. Here’s how you can do it on Ka.app, one of the apps similar to Cash App that allows you to send cryptocurrency for free.
a. If the recipient is a Ka.app user
- Sign up for a Ka.app account.
- Log in on the platform.
- Buy crypto. You may choose from different cryptocurrencies and payment methods available on the platform.
- Go back to the home screen, and click the send icon.
- Select the recipient. You may also manually enter their mobile number or upload their QR code.
- Select the crypto you want to send.
- Enter the amount of crypto you want to send.
- Enter your PIN code to confirm the cross-border transfer.
- Inform the recipient of the confirmed transaction. They should receive the payment within seconds.
b. If the recipient uses a different wallet or exchange
- Create a Ka.app account.
- Log in on the platform.
- Buy the crypto you want to send.
- Go back to the home screen, and click the crypto you want to send (e.g., KASTA token).
- Click the withdraw icon.
- Get the recipient’s wallet address and paste it on Ka.app.
- Enter the amount of crypto you want to send.
- Confirm the transfer with your PIN code.
Some Future Trends in Cross-Border Payments
Several emerging trends are set to redefine how we approach cross-border crypto payments in the coming years. It’s crucial to stay informed of these trends to stay on top of potential regulatory changes, implement better security measures, and get valuable insights for your investment decisions.
The Rise of Central Bank Digital Currency (CBDC)
Unlike decentralised cryptocurrencies, CBDCs are digital forms of a country's fiat currency, issued and regulated by its central bank. This development is poised to offer a more stable and regulated alternative to traditional crypto, potentially increasing public trust and adoption. As more countries experiment with or launch their own digital currencies, we can expect them to play a crucial role in streamlining cross-border transactions, reducing costs, and enhancing transaction speeds.
Artificial Intelligence (AI) and Machine Learning in Fraud Detection
Another trend revolutionising cross-border payments is the integration of AI and machine learning technologies, especially in identifying and preventing fraudulent activities. By analysing vast amounts of transaction data in real-time, AI systems can detect anomalies and patterns indicative of fraud, thereby enhancing the security and integrity of cross-border crypto transactions.
Regulatory Developments and Compliance
Global financial regulators are increasingly focusing on creating standards and guidelines to manage the risks associated with digital currencies while harnessing their benefits. Compliance can become a key focus, ensuring that the advancements in crypto payments don't become a conduit for money laundering or other illicit activities.
The Bottom Line
Cross-border crypto payments herald a new era of financial inclusion and innovation, signaling a future where international transfers are more accessible, less costly, and universally available. These digital transactions transcend traditional banking barriers, offering a level of efficiency that many people thought wasn’t possible a few years back.
Cryptocurrencies eliminate the need for intermediaries, significantly reducing transaction times from days to mere seconds or a few hours, depending on the platform you will use. Likewise, the reduced costs associated with crypto payments are a game-changer, offering a more affordable and inclusive option to individuals and businesses that were previously facing challenges associated with high transaction fees.
Learn more about the future of crypto payments.
FAQ
Are cross-border payments and remittances the same?
Although they both involve transferring funds across international borders, cross-border payments and crypto remittances are not exactly the same. The main differences between the two lie in their scale, purpose, and participants.
Cross-border payments are broader in scope, encompassing various types of international financial transactions beyond personal transfers. Remittances, on the other hand, are specifically personal, family-oriented financial support sent by individuals working abroad. In terms of economic impact, while both are essential for global financial connectivity, remittances have a more direct impact on household income and economic stability in many developing nations.
Do I need a bank account to send cross-border crypto payments?
No, a bank account is not necessary. You only need a crypto wallet to send or receive cryptocurrencies, making it accessible to those without access to banks.
How much are the fees required to make cross-border payments?
Fees for crypto transactions are typically lower than those required in traditional bank transfers, but they usually vary depending on several factors. Such factors may include the platform and crypto you will use, network congestion, and more. In Ka.app, crypto transfers are usually free when the recipients accept the payment in the same currency (e.g., sent in Bitcoin and received in Bitcoin).
Can I convert crypto to my local currency after receiving it?
Yes, some platforms allow you to convert crypto to cash and withdraw it to your bank or e-wallet. For instance, users from the European Economic Area (EEA) can use Ka.app to convert crypto to euros and withdraw euros via IBAN.
