Cross-Border Bitcoin Payments: Mid-Market Appeal

There are many potential points of friction or failure in cross-border payments between businesses, ranging from slow finality and high costs to counterparty risk.

These are all issues that using bitcoin, stablecoins and other digital assets can help you circumvent, said Stephen Pair, CEO of crypto payment technology firm BitPay.

When the Bitcoin blockchain first launched in 2009, it was “the first time a technology made it possible to transfer value from person to person without a third-party intermediary, and just as importantly, without a counterparty,” he told PYMNTS’ Karen Webster . “Once that transaction is confirmed on the network, it’s final and irreversible. So for an international transaction, it makes perfect sense because you’re not dealing with the costs and inefficiencies and slowness of the international correspondent banking system.”

Besides, he added, “there’s a lot of risk in that system.”

Taking a check for goods or services sold to a business on another continent – ​​and sometimes in a country with a weak financial system – means trusting not only the customer, but also their bank. To say nothing of accepting the costs and delays associated with the international correspondent banking system, he added.

“On the other hand, you can suggest that they pay you in bitcoin – in which case it goes from theirs [digital] wallet to yours,” Pair said. “It’s done, it’s final and that’s the end of it. You now have an asset that has a market value.”

Solves volatility

Of course, that asset’s market value can be very volatile — but bitcoin can be traded for dollars, euros and most other fiat currencies within minutes anywhere you have internet access, he noted. That volatility can also be hedged if for some reason you can’t sell it immediately – for example, if the crypto payment is locked into a smart contract that only pays when certain conditions are met, such as the goods arriving safely.

And if you use a service like BitPay, it will collect crypto but pay in fiat, if desired — and it usually is, Pair said. “We take that volatility risk away from the seller.”

Another solution is to use a dollar- or euro-pegged stablecoin, he said, adding that they are becoming far more popular with his clients — not quite up to Bitcoin levels, but getting close.

Using a stablecoin like USDC “eliminates some of the complexity around managing the volatility of something like bitcoin, it has that advantage,” Pair said. There is still a learning curve about digital wallets – although not too steep, and usually involves partnering with a company that can make these payments happen.

Stuck in the middle

A sweet spot for cross-border crypto payments is the mid-market segment, which finds it more difficult and costly to move money internationally than large firms with more resources, Pair noted.

“The mid-sized and mid-market companies don’t have the global footprint to be able to handle transfers between subsidiaries,” he said, adding, “but we have Fortune 100 companies using our platform to do cross-border transfers between their subsidiaries. »

And while they benefit from internal crypto payments — which have no counterparty risk but can still cost time and money — Pair said he thinks it’s the smaller and mid-sized companies that stand to benefit the most.

“We’ve had clients of ours tell us that their only other option takes about three months for the transaction to complete,” he said. – It is not difficult to compete with that.

Risks and rewards

But it’s still the lack of counterparty risk “that makes bitcoin a transformational technology,” Pair said. “Other means of transferring value electronically all have a lot of counterparty risk … even when you do a credit card transaction, there’s a huge amount of counterparty risk in that transaction.”

With crypto, he added, “it doesn’t matter where the company is located, what kind of bank access they have, what kind of financial condition either the bank or that company is in. They’ve sent you the bitcoin and you can go to the market and do it to whatever you want.”

The downside of that is that neither party has the resources of the admittedly inefficient banking system when something goes wrong – for example, you only receive 23 widgets when you ordered and paid for 30.

There’s a different kind of risk with different solutions like underwriters, Pair said.

What crypto needs, he said, is for the US to lay the regulatory ground rules for cryptocurrencies, which would include clarifying know-your-customer (KYC) reporting requirements..

Then there’s the push to make the growing network of real-time payment networks up and running in many countries – as well as The Clearing House’s RTP network and soon-to-be FedNow in the US – interoperable. “How do you argue against that as a better option?” asked Webster.

“You’re dealing with a lot of different networks, you still haven’t eliminated counterparty risk,” Pair replied. “These are a lot of heterogeneous systems that are trying to connect. There’s still a lot of cost and a lot of risk and a lot of counterparty involvement in these systems. But bitcoin actually works right now.”