Distributing funds to family back home is a necessity for many migrants. Traditional cross-border payments tend to be aggravatingly slow, often taking several days to process. However, new technologies like blockchain, stablecoins, and central bank digital currencies (CBDC) seek to make a dramatic change. According to advocates, these innovations are on the brink of significantly expediting the process. High-profile business magnates like Elon Musk have joined this chorus, criticizing the inefficient banking system for not being up-to-date.
Musk’s recent venture, Twitter Payments LLC, has even procured its first money transmitter license from the state of New Hampshire, suggesting a concrete plan to address this issue. However, it can be argued that these emerging solutions perhaps underestimate existing infrastructures and are based on questionable assumptions.
London-based money transfer company Wise, formerly Transferwise, successfully processes 55% of its customers’ cross-border payments instantly. This is a significant increase from less than 10% back in 2018. Wisely, Wise doesn’t rely on blockchains, stablecoins, or CBDC. Instead, it uses established systems.
The triumph of Wise calls into question the views of new-age payment solution proponents. Even Musk, PayPal’s co-founder, seems to overlook the evolution of the payments system. While he describes the current financial system as a slow-moving set of databases involved in batch processing, it’s worth mentioning that the days of batch processing of retail payments are fading. Real-time processing is increasingly replacing it.
Batching was indeed an effective method in the past, but its speed became a concern. Recently, central banks worldwide made significant strides by introducing real-time retail payment systems that can process payments instantly around the clock. This ease of making payments anytime and with unprecedented speed has been enabled by the new public infrastructures established by central banks, available for banks and fintech companies alike.
These powerful real-time systems could soon near ubiquity. Wise now manages to send the majority of its cross-border payments instantly thanks – to global real-time systems. As more countries adopt such systems, the share of instantly settled Wise remittances is bound to increase.
However, this is not to say that there is no place for stablecoins, blockchains or even a Twitter-based payment system. These entities just have to realize that traditional banking systems are not as technologically stubborn as they’re assumed to be.
These beliefs don’t undermine the potential of new players. If Musk decides to propel Twitter’s payment system into the world of instant payments, he could integrate it into the modern real-time systems provided by central banks. Similarly, solutions based on stablecoins or blockchains can also find their place in the newer financial architecture.
In conclusion, the future belongs to diverse instant payment options, riding on the rails provided by central banks’ real-time systems.
Source: Coindesk
