Exploring Stellar Blockchain in Cross-Border Payments
Tags: blockchain, stellarchallenge, crossborderpayments, learning
Published: 2024-06-20 07:10:19

With the increase in people migrating to different countries, the number of cross-border payments has increased. According to the [World Bank](https://www.knomad.org/publication/migration-and-development-brief-37), about $630 billion was sent in remittances to low- and middle-income nations in 2022. It is expected that the value of cross-border payments will reach over [$250 trillion by 2027](https://www.bankofengland.co.uk/payment-and-settlement/cross-border-payments). However, hefty fees, averaging 7–8% (and up to 15% for developing economies), and prolonged processing times persist through various intermediaries. Here, Stellar blockchain can be used as a solution with its high-speed and low-cost transactions. This article explores how [Stellar blockchain development services](https://blockchain.oodles.io/stellar-blockchain-development-services/?utm_source=devto) can solve various challenges in cross-border payments.

## Challenges with Traditional Cross-Border Transactions
Most international money transfers pass through the SWIFT (Society for Worldwide Interbank Financial Telecommunication) system. Instead of sending actual money from the paying bank to the receiving bank, SWIFT transfers specific instructions, ensuring the security of financial transactions between its members.

Even after five decades in operation, SWIFT remains slow and costly. International money transfers heavily rely on SWIFT as an intermediary, incurring fees that elevate transaction costs. Consequently, it may take 3–5 business days for funds to reach the recipient.

The Stellar blockchain aims to provide a quicker substitute that avoids these costs and delays.

## Understanding Stellar for Cross-Border Payments
Stellar is an open-source blockchain that enables international payments. Its native digital currency is Lumen (XLM), which enables users to set up their account and transaction processing within the Stellar network. Stellar was developed with the intention of reducing obstacles to cross-border payments, advancing financial inclusion, and setting a new global payment standard.

## Built-In Features of Stellar
Let us understand the built-in features of Stellar:

- Speed: Stellar ensures swift confirmation of transactions, typically within [five seconds](https://stellar.org/learn/intro-to-stellar), offering an efficient environment for financial operations
- Cost: Stellar performs transactions with negligible transaction fees, averaging just over .000002 XLM per transaction.
- Scalability: The network is capable of processing up to 1000 transactions per second (t/s), rivaling the volume managed by SWIFT. Since its inception in 2015, the network has impressively handled over 13 billion operations.

## How Stellar Simplify Global Payments Without Intermediaries
Stellar establishes a seamless, blockchain-powered payment infrastructure and collaborates with local partners known as anchors. On the Stellar network, these anchors act as ports of entrance and departure for different international currencies.

Much like SWIFT, Stellar employs a standardized protocol. The network ensures consistent communication among all participants. Companies that use Stellar can send fiat money to an anchor, which enables a quick conversion to the recipient’s local currency. The receiver receives this converted value with ease thanks to a local anchor in their area.

This entire process eliminates the necessity for intermediary banks. Both the service provider and the buyer can conduct transactions in their respective local currencies. In essence, Stellar unifies the many procedures involved in foreign wire transfers and currency conversion into a single, straightforward channel.

## What Does Stellar Offer in Cross-border Payments
Here are the use cases of Stellar in the payment sector:

**Remittances**
Stellar facilitates seamless transactions between individuals. It ensures swift coverage of everyday expenses.

**Global Payroll**
Stellar’s platform allows for payroll distribution in local currencies without imposing minimum transaction requirements. It enables businesses to pay employees globally more efficiently.

**Treasury Management**
Stellar manages liquidity in operating accounts without pre-funding them. It provides better financial agility and effective treasury management for organizations using Stellar’s network.

Business Invoicing

Employing Stellar, enterprises can issue invoices to suppliers and other businesses without the need for pre-funding accounts. This simplifies and expedites the invoicing process.

**Merchant Settlement**
It expedites payouts and effortlessly converts funds back to a single operating currency for seamless merchant settlements.

**Social Payouts**
Stellar facilitates the issuance of partial or full payments for grants, aid, and government services. It ensures a streamlined process for social payouts.

**Enterprise Payouts**
Stellar improves the efficiency of enterprise-level payments. With Stellar, businesses can easily reconcile corporate payouts without the need for pre-funding accounts.

## Conclusion
The financial ecosystem must adopt Stellar-based blockchain solutions to revolutionize cross-border payments. Embracing this approach will enhance security, minimize risks, and elevate international transactions to new heights with secure, real-time, and cost-effective transfers.

If you are interested in tapping into the potential of the Stellar network, then connect with our [blockchain developers](https://blockchain.oodles.io/about-us/?utm_source=devto) to get started.