Beyond Correspondent Banking – Time For Cryptos And Blockchain?

There has been, seemingly, a parade of announcements geared toward bringing B2B payments into the digital age, bringing about the end of paper, speeding the time for settlement of transactions and making payments across borders cheaper and more transparent.

In some cases, blockchain is being deployed, sometimes with cryptocurrencies as part of the equation. In one example, Visa’s B2B Connect launched in June, using fiat currencies and elements of distributed ledger technologies. In another example, also in June, MoneyGram and Ripple struck a two-year strategic partnership to use Ripple’s xRapid product, where the goal is to leverage the XRP cryptocurrency for foreign exchange settlements in MoneyGram’s cross-border payments.

As cryptocurrencies gain, well, currency, and as heavyweights such as Facebook gear up to bring digital coins beyond being tools of speculation and volatility — might they help transform B2B beyond the way it has always been done, and disrupt the correspondent banking process?

In an interview with PYMNTS, Sonny Singh, chief commercial officer at BitPay, said that in terms of the broader landscape, commerce has become ever more global, and the standard system tied to correspondent banking is anything but efficient.

Consider that a payment that makes its way from Thailand to America can involve several different banks handling the transaction — and each bank assesses fees along the way.

Singh noted, too, that transactions can take two to five days to complete, and FX fees are not standardized. In the hypothetical transaction that moves from Thailand to the U.S. — let’s say it’s a million dollars’ worth of Thai baht — the U.S. side of the equation may receive the equivalent of $980,000, once fees are carved out.

Maybe it’s even more than $980,000.

Maybe it’s less.

It should be evident that there is value in taking the guesswork out of the equation — and value lies, too, Singh asserted, in using cryptos and blockchain in B2B. His own firm, he noted, allows businesses to settle transactions for a variety of currencies and digital coins across a guaranteed exchange rate, for a 1 percent fee. Transactions settle in one business day, he said.

The corridors that are seeing the most uptake in using the blockchain/crypto offering for international payments include Asia to Europe, Asia to the U.S. and Latin America to Europe, especially among importers and exporters. In some cases, firms may find value in the model as they move funds internally, across far-flung units within the firm that span the globe.

In one example, he said one large firm, Avnet, has used BitPay for large transactions, and total costs have been cheaper than bank wires.

The Volatility

Cryptocurrencies have proven to be nothing if not volatile — and bitcoin, of course, has over the past few years been worth as much as nearly $20,000, as little as around $3,000 and now, at this writing, sits north of $11,000. There is also the likelihood, of course, that regulatory scrutiny in how, when and where cryptos can be used is only going to increase.

“We think regulation is great, actually,” Singh said. “We want to work with regulators and we do work with regulators. We want them to make it transparent as to what is legal and not legal, and the right way of doing [transactions].” He added that the firm performs routine checks to ensure that bitcoin (with transparency across the blockchain) is not being sourced from the dark web or other questionable locations.

In reference to volatility, Singh noted that a locked-in exchange rate helps protect against volatility. He said that BitPay’s B2B payments grew by 250 percent in 2018, despite the fact that bitcoin, at the same time, plunged 80 percent. Recent announcements of initiatives such as the JPMorgan stablecoin and Facebook’s Libra have helped validate the move to bring cryptocurrencies more broadly into international payments.

In terms of mechanics, BitPay receives the bitcoin payments from, say, a firm in Brazil and converts them to local fiat currencies on the other side of the transaction — in this case, in the United States (and into U.S. dollars), less the 1 percent fee. The settlement timeframe of a single day means, too, that there is no chargeback risk. If a customer wants a refund, they have to deal directly with the direct counterparty in the transaction, Singh said.

“It’s essentially like paying cash,” he told PYMNTS, as liabilities shift from sellers to buyers across the international stage.

The Challenges

Of course, challenges still lie ahead, chiefly focused on education, Singh maintained — where treasurers and corporates may be worried about holding bitcoin on balance sheets (here, they don’t), or for smaller firms that may find it hard to buy bitcoin in the first place. On that latter point, Singh maintained that cryptocurrency exchanges are proliferating globally in tandem with some regulatory oversight.

The uptake may accelerate with new rollouts of crypto and blockchain projects by marquee names, as has been seen with JPMorgan and Facebook (where executives are familiar with and trust those firms through everyday interactions). But in the end, the crypto and blockchain model has a leg up over the thus-far entrenched correspondent banking system.

“We can tell you exactly how long it’s going to take and how much you’re going to make at the other end,” Singh told PYMNTS.