Is crypto doomed to fail in the cross-border payment market?

The recent news of Airwallex, a Melbourne-based company that offers fast and cheap cross-border payments for businesses, has sparked a debate about the future of crypto in this market. Airwallex's founder and CEO, Jack Zhang, has expressed his skepticism about the viability of using crypto, especially stablecoins or XRP, to facilitate international transactions. He argues that crypto is too illiquid and volatile compared to fiat currencies, and that businesses would not want to abandon the huge forex market for a risky and unproven alternative. He also points out that the traditional payment systems, such as SWIFT and ACH, are improving with the emergence of new real-time payment networks in various countries.

Zhang's views are not shared by everyone in the crypto space, however. Some proponents of crypto believe that it has the potential to revolutionize the cross-border payment industry by offering faster, cheaper, and more transparent solutions than the legacy systems. They cite examples of companies like Ripple and Circle, which are using crypto to enable cross-border transfers in regions where the existing infrastructure is inefficient or costly. They also claim that crypto can offer more financial inclusion and innovation, as it can reach people who are unbanked or underbanked, and enable new business models and use cases.

So, who is right? Will crypto eventually replace fiat in the cross-border payment market, or will it struggle to gain traction and adoption? The answer is not clear-cut, as there are many factors and challenges involved in this complex and dynamic field. In this article, we will explore some of the pros and cons of using crypto for cross-border payments, and discuss some of the trends and developments that could shape the future of this market.

Pros of using crypto for cross-border payments

One of the main advantages of using crypto for cross-border payments is that it can reduce the friction and costs associated with traditional methods. Crypto can eliminate or reduce the need for intermediaries, such as banks, payment processors, and clearing houses, which often charge high fees and impose delays and restrictions on transactions. Crypto can also simplify the currency conversion process, as it can avoid multiple exchanges and conversions between different fiat currencies. Crypto can also offer more transparency and security, as it can provide a verifiable and immutable record of transactions on a distributed ledger.

Another benefit of using crypto for cross-border payments is that it can enable more financial inclusion and innovation. Crypto can reach people who do not have access to bank accounts or other financial services, such as remittance recipients in developing countries. Crypto can also enable new business models and use cases that are not possible or feasible with fiat currencies, such as micropayments, peer-to-peer lending, decentralized applications, and smart contracts.

Cons of using crypto for cross-border payments

One of the main drawbacks of using crypto for cross-border payments is that it faces regulatory uncertainty and resistance from governments and central banks. Crypto is often seen as a threat to the sovereignty and stability of national currencies, as well as a source of money laundering, tax evasion, terrorism financing, and other illicit activities. Crypto is also subject to different legal frameworks and standards across different jurisdictions, which can create confusion and complexity for users and service providers. Crypto may also face competition or opposition from central bank digital currencies (CBDCs), which are digital versions of fiat currencies issued by central banks.

Another challenge of using crypto for cross-border payments is that it suffers from technical limitations and scalability issues. Crypto transactions are often slow, expensive, and unpredictable due to network congestion, limited capacity, and volatile fees. Crypto also requires a reliable internet connection and electricity supply, which may not be available or affordable in some regions. Crypto also poses usability and security challenges for users, who need to manage their own private keys, wallets, and passwords, and protect them from hackers, phishing, malware, and human errors.

The future of crypto in the cross-border payment market

The future of crypto in the cross-border payment market is hard to predict, as it depends on many factors and variables that are constantly changing. However, some possible scenarios and trends that could influence the outcome are:

• The adoption of CBDCs by major economies could either boost or hinder the use of crypto for cross-border payments. On one hand, CBDCs could provide a more efficient and interoperable alternative to fiat currencies, reducing the need for crypto. On the other hand, CBDCs could increase the awareness and acceptance of digital currencies among consumers and businesses, creating more demand for crypto.
• The development of new technologies and protocols could improve the performance and usability of crypto for cross-border payments. For instance, layer-2 solutions could increase the speed and scalability of crypto transactions by moving them off-chain. Interoperability solutions could enable seamless communication and exchange between different crypto networks and platforms. User-friendly interfaces and tools could make crypto more accessible and convenient for users.
• The emergence of new markets and use cases could create more opportunities and incentives for using crypto for cross-border payments. For example, the growth of e-commerce, gaming, streaming, and social media could increase the demand for micropayments, tipping, and digital content monetization. The expansion of the gig economy, freelancing, and outsourcing could increase the need for cross-border payments for workers and employers. The rise of decentralized finance (DeFi) could enable more lending, borrowing, and investing across borders.

Conclusion

Crypto has the potential to transform the cross-border payment market by offering faster, cheaper, and more transparent solutions than the traditional methods. However, crypto also faces many challenges and obstacles, such as regulatory uncertainty, technical limitations, and user adoption. The future of crypto in this market is uncertain, as it depends on how the various factors and trends will evolve and interact. Crypto may not replace fiat in the near future, but it may coexist and complement it in some segments and regions.