Payments innovation such as the introduction of distributed ledger technologies (DLTs) by Ripple and zero-fee remittances by Circle Pay have persuaded incumbents such as Swift, Visa and JP Morgan to raise their game in developing cross-border solutions, says the World Bank.

In a blog post, the global financial institution and lender notes that there is a need for a faster and more efficient remittance system as traditional business-to-business (B2B) cross-border payments tend to be slow and opaque and hamper business and cost structure across the globe. Many see DLT as the best option to “drive industry-wide change” it adds.

Developing countries face a major roadblock when it comes to efficient remittances, which is a critical resource in emerging economies. The blog notes that personal remittances represent as much as 10.5% of the GDP of the Philippines, 13.7% of Senegal, 28.3% of Nepal, and 29.3% of Haiti.

Global remittances rose by 4.6% last year, from $613 billion in 2017 to a record a high of $642 billion. Recognising their importance in emerging economies, the international community is working towards making them safer and more efficient.

While significantly lower than  10 years ago, the average cost of a global remittance is still high. As of Q4 2018 it was 7%, against the set target of 3% for 2030. It is even higher in regions where need is greatest, such as Sub-Saharan Africa where the cost is 8.97%. Here, cross-border payment innovation can help in reducing operational costs.

Praise for xRapid

“In 2018, Ripple, a fintech company, piloted xRapid, a DLT-based cross-border payments solution, along the very competitive US-Mexico corridor,” the blog notes.

“Financial institutions involved in the pilot saved 40-70% in foreign exchange (FX) costs and the average payment time was just over two minutes. The transfer of funds on xRapid took two to three seconds, with most of the processing time explained by domestic payment rails and intermediary digital asset exchanges.”

The blog also singles out Circle Pay, available in 29 countries, which allows almost instant peer-to-peer (P2P) money transfers in USD, GBP and EUR.

Such initiatives meant that “industry incumbents are also being pushed to innovate” in order “to reduce cost and better serve market needs”. Swift was now exploring DLT to solve nostro account reconciliation issues and also launch the gobal payments innovation (GPI) initiative.

Visa’s B2B Connect is also exploring a DLT solution for B2B cross-border payments, while “JP Morgan is making use of a DLT application that offers messaging, validation and FX pricing services enable them serve customers better.”