In today’s interconnected world, sending money across borders is something we often take for granted. Behind the scenes, however, the process that moves money between countries remains complex.
The technology that enables money movement has evolved rapidly in recent years. Not long ago, making an international transfer meant going to a bank branch, waiting in line for an attendant to process the transfer, and then receiving a confirmation once the payment had been completed.
Today, the global payments landscape is far more sophisticated, and, while the current system works well for the global corridors between the major economies, significant gaps remain – especially in the emerging markets.
At the heart of global payments are the ‘rails’ that move money: SWIFT messaging, correspondent banks, and card networks such as Visa and Mastercard. Existing payment rails are deeply embedded and highly reliable in many developed markets and intra-regional systems like SEPA in Europe.
For many use cases, these systems work extremely well for transferring money across borders. However, blockchain, in some instances, has the power to improve these rails – opening new corridors, lowering costs, and adding programmability. Blockchain probably isn’t going to rebuild Visa and Mastercard or SWIFT – it’s going to make them better.
How Cross-Border Payments Work Today
Accounts and Access
Before money can move, it needs a home.
Typically, this means a bank account in the sending and receiving countries. In some regions, mobile-based payment services – such as M-Pesa’s mobile money system in Kenya or GrabPay’s app-based wallet in Southeast Asia – serve as alternatives. These services allow users to send, receive, and store money using a mobile phone, sometimes without the need for a traditional bank account. Whether through a digital wallet or a bank account, accessed via a mobile phone or a computer, both individuals and businesses ultimately need a medium to send or receive funds.
The Cross-Border Traditional Transaction Flow: Bank in Country A → SWIFT → Intermediary Banks → Bank in Country B→ Recipient
Traditionally, most international transactions are processed and completed in a similar way. If a bank wants to send a payment to a supplier in another country, the sender provides the recipient’s name, account details, and SWIFT/BIC code.
SWIFT then acts as a secure messaging layer, confirming the transfer instructions between banks. The messages that SWIFT sends are encrypted and standardised, so banks can trust the instructions and process them efficiently. The actual funds move through one or more intermediary large settlement banks – such as JPMorgan, Barclays, or Deutsche Bank – which maintain ledger accounts and facilitate currency conversion if necessary. These ledger accounts are internal records that track the incoming and outgoing funds for each bank, ensuring the money is correctly credited and debited as it moves between banks. Each new intermediary introduces additional complexity, often requiring pre-funded accounts and creating opacity in the transaction’s progress. This makes the process of sending money from a developed to an emerging market typically longer and more expensive compared to sending money between two developed markets.
Strengths and Weaknesses of Today’s System
Traditional rails are highly reliable in G7-to-G7 and intra-European corridors. SEPA payments, for instance, run through multiple clearing cycles per day and typically settle within one business day.
However, inefficiencies become most apparent in the emerging-to-emerging market corridors. In many of these regions, where banks have limited direct clearing relationships, payments often need to pass through multiple intermediary institutions. This extends the time to final settlement and increases costs through fees and foreign exchange spreads. The addition of multiple intermediaries can also reduce transparency, leading to the often-heard complaint that banks “don’t know where the funds are.” For smaller businesses or individuals, these friction points can be restrictive, inconvenient, and expensive.
It is with these friction points that the integration of blockchain can enhance speed, transparency, and accessibility, complementing the existing global payment rails rather than trying to replace them.
The inefficiencies that are currently found in the global payments system are not simply operational – they are structural. Cross-border payments rely on fragmented liquidity, pre-funded accounts, and long chains of intermediaries.
Part 2 in this series will explore how blockchain infrastructure can augment legacy payment rails and help to address the inefficiencies in today’s cross-border payment system.
