Key takeaways:

• Cross-border payments & remittances face high fees and long settlement times
• A transaction can potentially involve up to four intermediaries before reaching the recipient
• Differing domestic payment networks add friction to the cross-border payments and remittances experience
• Fluctuating forex rates magnify inefficiencies and transparency
• Stablecoins can provide fast settlement times, transparency, and lower fees
• StraitsX Personal & Business Accounts can smoothen the on-ramp and off-ramp process with instant convertibility of fiat & stablecoin

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The experience of cross-border payments and remittances worldwide is full of friction. Both merchants and consumers face high fees, long settlement times, and a lack of transparency.

Cross-border payments and remittances go through many intermediaries

The market size for cross-border payments is expected to reach about US$156 trillion by the end of 2022. The value of the remittance market is around US$590 billion at the end of 2021. 

Cross-border payments and remittances go through no less than four intermediaries when done traditionally. This process usually takes a week to settle.

A person initiating a cross-border transaction – be it payments or remittances – would have to do so with their local bank. This is called the issuing bank.

The issuing bank then uses a correspondent or intermediary bank to complete the cross-border transaction. Correspondent banks usually support more currencies than the issuing bank, which usually handles domestic currencies only. Intermediary banks would be needed if the issuing bank’s country does not have an established financial relationship with the beneficiary bank’s country.

These transactions are handled through the Society for Worldwide Interbank Financial Telecommunication, or SWIFT network, which transmits messages between banks around the world. These messages contain information about cross-border transaction. This system was incepted in 1973, and very few improvements have been made since. Most cross-border payments and remittances go through their three data centres in the Netherlands, the United States, and Switzerland, with an additional command and control centre in Hong Kong.

Having only three data centres creates time inefficiencies and a centralised point of failure. While they are under heavy surveillance by the US National Security Agency, they do not completely mitigate the centralised point of failure. In an unlikely event that one, or all of these centres goes down, financial activities around the world could be massively disrupted.

Differing domestic payment networks add friction to the cross-border payments and remittances experience

The fragmented nature of domestic payment networks means that merchants and consumers do not get a consistent payment experience when doing cross-border payments or remittances because of the different levels of development in their recipients’ countries. While regions like Singapore are blessed with efficient payment systems like FAST and PayNow, other countries within Southeast Asia like Indonesia do not have such a system yet.

Fluctuating forex rates magnify inefficiencies and the lack of transparency

Within the week-long process of cross-border transfers, merchants and consumers have to contend with fluctuating forex rates. They are also not privy to the details of their transaction – they would only know how much they transferred and how much the recipient is expected to receive.

The details of their transactions are labelled under the umbrella of “transaction fees” or “platform fees”, which usually do not account for forex rates. Price stability is not guaranteed – what the sender intended may not be the amount that the receiver gets.

Stablecoins can bridge cross-border payments & remittances with a unified payments system, fast settlement times, transparency, & lower fees

Stablecoins like XSGD and XIDR are equipped to solve the problems faced when making cross-border payments and remittances.

Blockchain technology is universal, decentralised, and always-on. These translate into having a unified payment system, fast settlement times, and low chances of network disruption. Stablecoins add to these benefits by offering price stability because they can capture the prevailing forex rates and settle the transaction nearly instantaneously.

Smart contracts innate to stablecoins such as XSGD and XIDR facilitate instant forex conversion and fast transfers. XSGD and XIDR stablecoins are based on the Ethereum and Zilliqa token standards, and settlement times take around 6 minutes or 40 seconds on their respective blockchain networks. While each of these blockchain networks incur fees, they are much lower than the fees charged by banks. StraitsX covers fees above 5 XSGD and 50,000 XIDR.

Merchants and consumers who are curious about the status of their transactions can check on the applicable network’s block explorer. In the case of XSGD and XIDR, they can check their transactions on Etherscan and Viewblock for the Ethereum and Zilliqa networks respectively.  

Get easy access to XSGD & XIDR with a StraitsX Account

Ramping on and off the blockchain presents many barriers to stablecoin adoption. StraitsX has solved this problem by offering both merchants and consumers an easy-to-understand user experience within the StraitsX Personal or Business Account.

It is a simple process:

1. Sign up for a StraitsX Personal or Business Account.
2. Verify your identity and upload the required documents.
3. Link your bank account with your StraitsX Account to get XSGD or XIDR.
4. For transactions of up to S$200,000, use the StraitsX Mint feature.
5. Get access to all features available to the StraitsX Personal Account. Business Accounts get Personal Account features plus user multi-tenancy and transaction management.
6. Transfer Out your XSGD or XIDR to any one of our DeFi partners via a personal, non-custodial wallet:  DFX, Uniswap, and Zilswap.
7. Pool your XSGD or XIDR on DFX, Uniswap, and Zilswap to swap and redeem between different stablecoins such as USDC, EURS, and others.
8. Alternatively, you can pool your XSGD or XIDR on our partner DeFi protocol to reap attractive yields with low slippages.

Note: If you are a high net worth individual, or institution, you can take advantage of StraitsX’s OTC Desk feature that offers deep liquidity and OTC block trades.

StraitsX and our DeFi partners are especially catered for our Indonesian and Singaporean users because of our native support of XSGD and XIDR. This would allow our regional investors to trade in their home currency, as opposed to factoring in the conversion of their home currency to the US Dollar (USD), minimising transaction fees, and slippages.

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