Blockchain for remittance payments is a hotly contested field, with companies such as R3 and Ripple entering the fray. However, one that remains more likely to succeed is IBM World Wire, a payments solution developed by IBM.
The World Wire project aims to bring transparency and speed afforded by the blockchain to the environment of cross-border payments for corporates.
Addressing A Pain Point In Corporate Giants
Cross-border payments are one of the biggest pain points for multinational corporations and financial institutions. The outdated system for moving money across borders has a lot of problems that do not bode well for money flow across various branches of a company.
Many have developed their own solutions for payments or worked out exclusive deals with financial service providers, but moving money still remains as one of the more difficult pain points to eliminate.
The process is not transparent, with payments taking anywhere between 1 to 3 business days to settle. It also involves a lot of middlemen to serve as bridge currencies into more obscure currencies.
The fees also scale up exponentially with the amount of money moved, and there is a lot of volatility and counterparty risk involved. There is also a high possibility of errors. These factors come together to make cross-border payments a highly risky field for any corporate.
Why IBM Chose To Enter The Field
Over 97% of the world’s largest banks are customers of IBM. ‘Big Blue’ develops backend software for financial institutions that are the market leader for managing payment infrastructure.
The company also has a stake in other blockchain-based products for tracking food and for logistics. They have also collaborated towards the creation of the Hyperledger platform.
The World Wire project aims to increase transparency, while maintaining the immutability of transactions afforded by the blockchain. The network will also decrease the need for intermediaries by allowing for seamless communication and consensus among those on the chain.
The efficiency offered by using blockchains will also allow for “near real-time remittance”, according to IBM. The network also aims to utilize the momentum of an accompanying technology in the form of central bank digital currencies in order to change the landscape of remittance payments.
Changing The Landscape Of Accessible Settlements
The blockchain has already launched in around 72 countries, trading in 47 currencies and 1081 currency trading pairs. This, coupled with its 44 banking endpoints, give World Wire a considerable advantage over its competitors.
The blockchain also allows financial institutions to clear and settle at the same time, which were two processes that usually did not occur in tandem. In the SWIFT system, the bank would first clear the transaction using the messaging system, and then begin to move the money.
This led to a lot of friction and delays in the settlement process, as the actual money did not begin moving until the payment was cleared. The money is also moved through large pools of liquid currency at the receiving end, which locks up a lot of capital in an unusable manner.
However, using the blockchain allows World Wire to clear and settle simultaneously within seconds. This is done by using a bridge asset such as cryptocurrency, a stable coin, or a central bank digital currency.
Stable coins are cryptocurrencies that are pegged in value to a fiat currency, which CBDCs are digital currencies which are issued by central banks, thus making them direct representations of fiat money.
The blockchain is both currency agnostic and easy to integrate into existing systems through a simple API call. The simplicity also extends to the blockchain itself, where the World Wire service converts the digital asset into the fiat currency on the receiving end seamlessly. The transaction details are then preserved in an immutable manner.
Blockchains And CBDCs Set To Disrupt The State Of Affairs
The emergence of IBM World Wire is only indicative of a change in the larger environment of financial institutions. Owing to the easily-accessible consensus mechanisms and scalability of centrally-operated blockchains, they create a good fit for the infrastructure of an economy.
This is already seen by the production of CBDCs, which are digital assets issued by central banks to facilitate more seamless transfer of money. CBDCs can open up a world of possibilities to cross-border payments, as they can be subjected to atomic swaps to increase their fungibility with other currencies.
The spread of blockchain into the financial ecosystem of the world will make it a lot more transparent as well. This is due to the fact that it is possible for node-operating parties to access transaction records with ease.
The World Wire solution is also currency agnostic, as mentioned previously, and also functions in a way where it supports multiple digital assets. The level of financial inclusivity that IBM World Wire brings will allow it to be interoperable with CBDCs, cryptocurrencies, stable coins, and many more types of financial instrument.
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