Fintech companies have been storming emerging markets for a while. In Latin America, for example, innovations have made it possible for unbanked people to access the financial services they have long awaited. And as mobile adoption has surged in recent years in Africa and Asia-Pacific, new payment solutions have emerged to serve the traditionally excluded.

The results of this fintech revolution are certainly remarkable:
The rise of online transactions, the explosion in e-commerce activity and the growing interest among players in international trade are all factors that are driving economic growth.

However, opening up new opportunities has become a double-edged sword due to cross-border finance. Payment systems are still underdeveloped in most emerging markets and are therefore expensive and slow. Now, modern blockchain-based payment systems usher in a new era of growth.

Let’s see how blockchain technology can have a positive impact on the development of emerging economies.

How Blockchain is Transforming Cross-Border Transactions

In recent years, specialized remittance operators have sprung up to provide near-instant money transfers and reduce deposit costs. However, it takes an average of $13 to send $200 to another country.

The Bank for International Settlements explains that payments must be converted to currency on both sides of the transaction (also known as a “receipt, cash”). This process typically requires manual handling (including customer identity verification) and physical presence. Small businesses and individuals depositing fewer cash volumes globally face even higher fees and waiting times than large retail customers.

By eliminating middlemen, blockchain users benefit from better transaction speeds, profitable transactions, and increased security. Instead of exchanging currencies, blockchain payment service providers allow customers in country A to purchase tokens, which are then sent to recipients in country B within seconds.

The recipient can then exchange them in the currency of their choice. Since this type of payment is usually based on stablecoins, the country’s currency determines the price.

Blockchain users benefit from better transaction speeds, profitable transactions, and increased security by eliminating middlemen. The technology is based on transparency and visibility – once a transaction is made, it cannot be changed or deleted. This reduces errors and the possibility of fraud as anyone can verify the information and consider it to be against the law.

At the same time, distributed ledger technology reduces the risk of errors. Especially when transferring money between different countries, clerical errors or incorrect account numbers can hinder the speed and settlement of transactions. Technology will immediately identify something as a typo – no payment allowed. The payment provider can then contact their customer and correct the destination address.

Blockchain payments are particularly relevant in areas where participation in the digital economy is growing, but where there is no corresponding growth in access to e-commerce-based payment mechanisms. . However, users will need the internet and mobile phones or computers to manage their digital transactions. The good news is that most countries in East Asia, the Pacific, and Latin America have high rates of mobile phone usage – and if needed, customers can go to the provider’s office.

Current problems with blockchain technology

While blockchain is a fast-growing industry, its market size is expected to reach $163.83 billion by 2029, according to Fortune Business Insights. – it’s not all sunshine and rainbows.

Take the blockchain impossibility trio as an example. This means that decentralized networks can’t have it all – they can offer two of the following three advantages: decentralization, security, and scalability.

To illustrate, Bitcoin is decentralized and secure, meaning it’s safe and no individual or group is in charge – instead, all users collectively retain control. However, Bitcoin is not scalable, resulting in transaction latency. It takes 10 minutes compared to the average Bitcoin transaction confirmation time and can process up to seven transactions per second (remember that VISA can complete 1,667 transactions in a second). This, as expected, leads to high transaction costs.

Another great example is Ethereum. Despite being the second largest cryptocurrency in the world, transactions on the platform can be more expensive than others and depending on network congestion, a transaction can take anywhere from 15 seconds. to a few days. The good news is that programmers and developers have already taken steps to upgrade the network to ETH 2.0.

This development plan will allow the platform to process more than 100,000 transactions while significantly reducing costs and delays and being more sustainable. Focusing on interoperability is also another way to make cross-border blockchain payments more efficient. In short, interoperable money and payment blockchain systems like Stellar can find the most optimal solution when it comes to money conversion.

This is because interoperability allows different blockchains to listen to each other and transfer digital assets and data. This better collaboration reduces costs and increases the number of transactions per second.

Cross-border trade brings new opportunities

First, the introduction of digital currency and related technologies will encourage service providers and entire countries to invest in digital infrastructure. The current interest of countries in adopting their own digital currency – Central Bank Digital Currency (CBDC) – shows a growing trend towards non-banking societies. cash and equal access to financial services.

Increased cross-border economic activity will allow people in emerging markets to generate higher incomes, which will stimulate the economy. Having the ability to participate in international supply chains, they can easily purchase goods, services and technologies abroad to diversify their product portfolio and sell them abroad.

Finally, cheaper remittances also help reduce tensions between migrants and the families supporting them abroad. As the Conversation suggests, more than 270 million migrants living and working abroad send money back home in a typical year. And often, it is the migrant families who have to save as much as possible.

Is the blockchain itself innovative enough to disrupt the entire financial system? He is. Its transformative power begins with bringing more and more financial freedom to people in emerging markets – a long-awaited economic relief.