Is Crypto the Future of B2B Cross-Border Payments?
Crypto (officially known as “cryptocurrency”) is a digital currency designed as a non-physical medium of exchange. But, unlike traditional or “fiat” currency, central entities don’t print, hold, or manipulate cryptocurrencies. Instead, algorithms and cryptography create coins that add transactions to the blockchain – called “mining.”1
Details of every crypto transfer or transaction are validated and recorded on a decentralized ledger — called a “blockchain” — that stores information. While the data can be publicly viewed, this method of recording transactions doesn’t allow single entities to manipulate or control the data. Crypto is secure for online transactions and nearly impossible to counterfeit.2
Once considered trendy, crypto is gaining traction. In 2020, more than 2,300 U.S. businesses accepted bitcoin – one form of crypto.3 Microsoft, Overstock, Starbucks, The Home Depot, AT&T, and major restaurant chains like Burger King and KFC are among large corporations that accept bitcoin either directly or through a third party. Worldwide more than 15,174 businesses accept crypto.4
Multinational companies are already using crypto for cross-border payments.
B2B cross-border payments are expected to reach $35 trillion this year.5 Global demand for goods and services, speed and convenience are driving the need for increasingly diverse payment methods.
Multinational companies are onboard with cryptocurrency – 58% use at least one type and 56% use at least one blockchain network in their day-to-day.6 With its inherent speed, security, and transparency, crypto offers a simple means for businesses to accept and send payments at potential savings of up to 75% and 96% faster.7
How Crypto Cross-Border Payments Work
As global adoption continues, it’s clear crypto has the potential to become a major cross-border B2B payment method. Thirty-seven percent of multinationals are already using crypto or blockchain for cross-border payments.8
Mainstream crypto adoption is still an uphill battle.
For all the promise crypto offers, there are still barriers, including technology regulations and scalability. In addition, financial institutions have been slow to offer cryptocurrency even though they realize it’s important to customers. Only about 10% of financial institutions offer crypto to consumers and, of those, only four percent plan to change that.9
Head of Innovation at Synovus, Matt Maxey, recognizes there are risks, but thinks there’s great potential for cryptocurrency. “Within the U.S., the ongoing governmental and regulatory evaluations of cryptocurrencies, and in general, digital asset frameworks, pose some short-term risk to adoption in financial services and banking. When the dust settles, I believe we will see a meaningfully regulated ecosystem that provides clarity and fits tightly within our banking models,” he says.
Businesses that are considering crypto as a payment option, including cross-border, should track crypto developments and carefully weigh the rewards and risks.
Doesn't require expensive, complex technology or hardware.
To begin exchanging cryptocurrency, all that’s needed is an internet-connected computer or mobile device. POS hardware or a plugin, or other software to process crypto payments in your physical location, or online e-commerce platform is required to accept crypto as payment. If your business plans to hold and store any cryptocurrency, you'll also need a crypto wallet.
It’s extremely volatile.
Cryptocurrency value is based on market demand. Because of its relative newness and minimal regulation, value can be highly volatile — worth $750 or $19,000 in one year, depending on when it was purchased — versus fiat currency. This instability can be risky for businesses and can make pricing goods and returns tricky. In addition, crypto is currently treated like stock, so any appreciation is subject to capital gains taxes.
Lower transaction fees.
Corporations often complain about high credit card processing fees. Ranging from almost three to just over five percent, they can be substantial.10 Cryptocurrency exchanges process, convert and hold digital currency for individuals or businesses at flat or other fees that are usually less than one percent.11 Straight peer-to-peer transactions, with no third party, involve no fees.
Crypto exchanges are vulnerable to hackers.
Transaction records in the blockchain are impenetrable, but cryptocurrency exchanges, where coins are converted and stored, can be hacked. Criminals can also infiltrate wallets and steal coins if they know a user's private key. Unlike traditional currency, crypto balances are not FDIC-insured, so the government isn’t obligated to assist in reclaiming your losses.
Global chargebacks are expected to total $117.47 billion or more by 2023.12 There's no third-party in crypto transactions, so transactions are irreversible and only the party receiving the funds can request a refund.
Currency conversion costs might be prohibitive.
It's true cryptocurrency offers significant savings in fees as compared to card processing. But crypto carries currency-conversion fees. For companies that choose to convert coins to fiat currency, high conversion rates could negate any savings from lower card processing fees.
The payments landscape is rapidly evolving, as digital currencies and the blockchain make moving funds faster and faster. But with opportunity comes risk. Be sure you have the right solutions for seamless, secure transfers and payments.
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