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Critical Evaluation of Blockchain in Cross-border Payments
Research · February 2025
DOI: 10.13140/RG.2.2.16988.30083
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Table of Contents
1 Introduction ........................................................................................................................ 3
2 Opportunities in Blockchain-Based Cross-border Payments ............................................. 4
2.1 Reduction in Transaction Costs and Increased Efficiency ......................................... 4
2.2 Real-Time Transaction Settlements ........................................................................... 4
2.3 Financial Inclusion ..................................................................................................... 5
3 Practical Implications of Blockchain Adoption in Cross-border Payments ....................... 5
3.1 Transformation of Financial Institutions and Business Models ................................. 5
3.2 Impact on Cross-border Trade and Remittances ........................................................ 6
3.3 Compliance, Transparency, and Anti-Fraud Mechanisms ......................................... 6
3.4 Integration with Central Bank Digital Currencies (CBDCs) ..................................... 7
4 Risks and Challenges ......................................................................................................... 7
4.1 Scalability and Network Congestion .......................................................................... 7
4.2 Regulatory Uncertainty and Compliance Barriers ..................................................... 8
4.3 Security Vulnerabilities and Cyber Threats ............................................................... 8
4.4 Energy Consumption and Environmental Concerns .................................................. 9
4.5 Resistance from Traditional Financial Institutions .................................................... 9
4.6 Lack of Standardization and Interoperability Challenges ........................................ 10
5 Degrees of Disruption in Cross-border Payments ............................................................ 10
5.1 Potential for Market Disruption ............................................................................... 10
5.2 The Role of Central Bank Digital Currencies (CBDCs) .......................................... 10
5.3 Geopolitical and Economic Implications ................................................................. 11
6 Conclusion ........................................................................................................................ 11
7 Appendix .......................................................................................................................... 12
7.1 Table 1 - SWOT Analysis ........................................................................................ 12
7.2 Table 2 - PESTEL Analysis ..................................................................................... 13
8 References ........................................................................................................................ 15
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Critical Evaluation of Blockchain in Cross-border Payments
1 Introduction
Blockchain technology is rapidly emerging as a transformative force with the potential to
revolutionise cross-border payments. Traditional cross-border transactions often involve
multiple intermediaries, resulting in inefficiencies, high costs, and prolonged settlement times
(Vijaya et al., 2023). Despite significant growth in the global market for cross-border payments
in recent years, the conventional banking model has struggled to adapt to this development.
This assessment critically examines the potential and challenges associated with blockchain
adoption in cross-border payments. It explores key opportunities, such as reduced transaction
costs, increased efficiency, enhanced financial inclusion, and improved transparency.
Additionally, it explores into the practical implications of blockchain adoption, including the
transformation of financial institutions, the impact on cross-border trade and remittances, and
its integration with Central Bank Digital Currencies (Catalini et al., 2021).
The assessment also considers significant risks and challenges, including scalability issues,
regulatory uncertainty, security vulnerabilities, and interoperability challenges. By examining
these factors, it evaluates the degree of disruption blockchain may cause within the global
financial ecosystem and its potential to reshape the future of cross-border payments.
Furthermore, a PESTEL and SWOT analysis in the appendix provides a comprehensive view
of the strategic and macroeconomic factors influencing blockchain adoption in cross-border
payments.
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2 Opportunities in Blockchain-Based Cross-border Payments
2.1 Reduction in Transaction Costs and Increased Efficiency
Conventional banking systems rely on intermediaries such as correspondent banks,
clearinghouses, and payment processors, all of which add fees to cross-border payments.
Blockchain eliminates these intermediaries, enabling peer-to-peer transactions with
significantly reduced fees (Vijaya et al., 2023). Ripple, for instance, has demonstrated that its
blockchain-based system can reduce transaction costs by up to 42%, providing a competitive
advantage over traditional networks like SWIFT (Javaid et al., 2022). This advantage is further
amplified in high-volume remittance corridors, where transaction fees significantly impact
businesses and individuals (Qiu et al., 2019). Moreover, large financial institutions such as
JPMorgan have recognised this potential and launched JPM Coin, a blockchain-based
settlement solution to reduce cross-border transaction costs (Liao and Shao, 2021).
2.2 Real-Time Transaction Settlements
Blockchain-based systems offer near-instantaneous transactions, which is particularly
advantageous for businesses requiring quick liquidity and seamless cross-border trade (Deng,
2020). Faster transaction speeds also improve supply chain efficiency by reducing delays
caused by payment verification processes (Hongmei, 2021). Furthermore, blockchain enables
cross-border micropayments, which are difficult to process under traditional banking systems
due to high transaction fees. For instance, the Stellar network provides a blockchain-based
payment system that facilitates fast, low-cost transactions. It has partnered with companies like
IBM to create World Wire, a blockchain-based financial rail aimed at revolutionizing cross-
border settlements (Vijaya et al., 2023).
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2.3 Financial Inclusion
Blockchain facilitates access to financial services for underbanked populations, providing a
decentralized payment alternative that bypasses traditional banking infrastructure (Catalini et
al., 2021). In regions with limited banking penetration, blockchain-powered remittances can
provide an efficient and cost-effective means of transferring funds. The World Bank has
reported that 1.4 billion adults remain unbanked, many of whom rely on expensive and
inefficient remittance services (World Bank, 2022). Blockchain-based solutions could bridge
this gap, creating a more inclusive financial ecosystem for emerging economies (Tereza
Bízková, 2024). This potential for financial inclusion aligns with the SWOT analysis, which
highlights blockchain’s expansion into underserved markets as a major opportunity.
3 Practical Implications of Blockchain Adoption in Cross-border Payments
3.1 Transformation of Financial Institutions and Business Models
The adoption of blockchain has the potential to disrupt existing business models in financial
services. Traditional banks and payment processors that generate revenue from transaction fees
may see their margins shrink as blockchain-based solutions gain traction. Financial institutions
must adapt by integrating blockchain technology into their operations or risk losing market
share to fintech startups and decentralized finance (DeFi) platforms (Chishti and Barberis,
2016). Many financial institutions are developing hybrid models that integrate blockchain while
maintaining regulatory oversight. Examples include JPM Coin by JPMorgan Chase, which
facilitates blockchain-based cross-border settlements while adhering to traditional financial
regulations (BAYRAM, 2020).
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3.2 Impact on Cross-border Trade and Remittances
Traditional cross-border transactions take 1-5 business days, leading to delays in global
commerce (Deng, 2020). Blockchain-based systems such as RippleNet enable near-
instantaneous transactions, enhancing liquidity management for multinational corporations and
small exporters (Niels Pedersen, 2021). According to the World Bank, remittance fees via
traditional banking channels average 6-7% per transaction (remittanceprices.worldbank.org,
n.d.). While specific fees can vary, blockchain-powered solutions like Stellar have the potential
to offer significantly lower transaction fees compared to traditional systems, potentially
enabling cross-border payments at a fraction of the current cost.
3.3 Compliance, Transparency, and Anti-Fraud Mechanisms
Cross-border payments must comply with anti-money laundering (AML) and counter-terrorism
financing (CTF) regulations, requiring financial institutions to conduct thorough due diligence
(Chishti and Barberis, 2016). Transparency and traceability can be enhanced by Blockchain,
decreasing fraud and ensuring compliance with regulatory frameworks. Smart contracts can
automate compliance checks, sanctions screening, and tax reporting, reducing the
administrative burden on financial institutions (Liao and Shao, 2021). Additionally,
blockchain’s immutable ledger makes it easier to track financial transactions, minimizing the
risks of double spending, identity fraud, and illicit financial flows (Qiu et al., 2019). However,
while blockchain improves compliance capabilities, the lack of standardised regulations across
jurisdictions remains a challenge. The PESTEL analysis in the appendix highlights how
different countries have varying legal requirements, which could complicate blockchain’s
global adoption in cross-border payments.
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3.4 Integration with Central Bank Digital Currencies (CBDCs)
Several central banks are exploring CBDCs as a way to modernise cross-border payments while
maintaining monetary policy control (Catalini et al., 2021). Countries such as China (digital
yuan) and the European Union (digital euro) are leading the development of CBDCs, which
could serve as blockchain-based alternatives to traditional fiat currencies (Prodan et al., 2024).
If successfully integrated, CBDCs could facilitate seamless, instant, and low-cost cross-border
payments, reducing reliance on legacy systems like SWIFT. However, if central banks
implement state-controlled digital currencies, it may reduce the need for decentralized
blockchain payment systems, limiting their disruption potential. Some policymakers argue that
CBDCs can integrate with blockchain-based systems rather than replace them, suggesting a
hybrid future where both centralized and decentralized digital currencies coexist to optimise
global transactions.
4 Risks and Challenges
4.1 Scalability and Network Congestion
Despite its potential, blockchain technology faces significant scalability issues. Public
blockchains like Bitcoin and Ethereum have limited transaction processing capabilities, leading
to slow transaction times and high network fees during peak periods (Qiu et al., 2019). Solutions
like Layer-2 scaling technologies and sharding are under development but require widespread
adoption to be effective (Deng, 2020). However, the pace of scalability improvements remains
slow, and some financial institutions remain uncertain about blockchain’s ability to handle
high-volume cross-border transactions efficiently. Additionally, the SWOT analysis in the
appendix identifies scalability as a key weakness of blockchain, which could hinder its
widespread implementation in cross-border payments.
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4.2 Regulatory Uncertainty and Compliance Barriers
Regulatory clarity remains a major barrier to blockchain adoption. Many jurisdictions have yet
to develop comprehensive frameworks for blockchain-based payments, leading to uncertainty
among businesses and financial institutions (Chishti and Barberis, 2016). Countries such as the
United States, the European Union, and China have taken different approaches, with some
embracing blockchain innovation while others imposing strict regulations due to concerns about
financial crime and economic stability (Javaid et al., 2022). This compliance burden adds
operational costs and may slow adoption among traditional financial institutions reluctant to
take on additional regulatory risks (Qiu et al., 2019). Governments may also impose capital
controls on blockchain transactions to prevent financial outflows, limiting blockchain’s
potential for unrestricted cross-border payments. For example, China has banned
cryptocurrency transactions, while simultaneously developing its own Central Bank Digital
Currency (CBDC) as a state-controlled alternative to blockchain-based financial systems
(Catalini et al., 2021). The PESTEL analysis in appendix identifies legal and political factors
as significant barriers to blockchain adoption, particularly due to the lack of regulatory
uniformity across jurisdictions.
4.3 Security Vulnerabilities and Cyber Threats
Blockchain, though seen as secure, is still vulnerable to cyber threats and fraud. One of the most
significant vulnerabilities in blockchain-based payments stems from smart contract flaws. In
2021, a major decentralized finance (DeFi) platform suffered a $600 million hack, exposing
security weaknesses in smart contract development (Vijaya et al., 2023). Governments and
cybersecurity experts are increasingly calling for improved security frameworks, third-party
auditing, and standardization of smart contract development (Qiu et al., 2019). The SWOT
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analysis in appendix categorises security vulnerabilities as a significant weakness, especially
for financial institutions that require highly secure and tamper-proof payment systems.
4.4 Energy Consumption and Environmental Concerns
One of the most pressing challenges of blockchain technology in cross-border payments is its
significant energy consumption. Cryptocurrencies like Bitcoin, often used for international
transactions, rely on energy-intensive Proof-of-Work (PoW) mechanisms (Niels Pedersen,
2021). Bitcoin mining alone consumes an estimated 127–172 TWh annually—comparable to
the electricity use of countries like Argentina or Norway—and generates 65.4 megatons of CO2
emissions, akin to Greece's annual output (GreenMatch.co.uk, 2024). This environmental
impact raises questions about the sustainability of blockchain-based systems for cross-border
payments. Efforts to address these issues include the adoption of energy-efficient alternatives
like Proof-of-Stake (PoS) and hybrid consensus models (Niels Pedersen, 2021).
4.5 Resistance from Traditional Financial Institutions
The financial sector has been slow to adopt blockchain-based payments due to concerns about
profitability, compliance, and technological integration. Banks and payment processors that
generate revenue from foreign exchange fees, transaction fees, and correspondent banking
services may resist blockchain adoption, as it threatens their existing business models. While
some major institutions, such as Visa and MasterCard, have begun integrating blockchain into
their payment ecosystems, many banks remain hesitant due to the risks associated with asset
volatility, regulatory uncertainty, and technological challenges (Javaid et al., 2022). The SWOT
analysis in appendix also identifies resistance from established financial institutions as a threat,
as these players hold significant influence over global payment networks.
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4.6 Lack of Standardization and Interoperability Challenges
A final challenge facing blockchain adoption in cross-border payments is the lack of
standardization across blockchain networks. With multiple competing protocols, including
Bitcoin, Ethereum, Hyperledger, Ripple, and Stellar, getting interoperability between different
blockchain platforms and traditional financial systems remains a major challenge (Javaid et al.,
2022). The absence of common regulatory standards, transaction formats, and settlement
mechanisms makes cross-chain communication complex and inefficient. This fragmentation
increases operational risks and slows adoption, as businesses are reluctant to commit to a single
blockchain system that may not integrate well with others (Chishti and Barberis, 2016). The
PESTEL analysis in appendix identifies interoperability as a technological challenge, as a lack
of common standards could prevent blockchain from being seamlessly integrated into
mainstream financial systems.
5 Degrees of Disruption in Cross-border Payments
5.1 Potential for Market Disruption
Blockchain technology has already demonstrated its ability to disrupt financial systems by
offering decentralized, borderless, and cost-efficient alternatives to traditional payment
networks. A significant challenge to SWIFT and other centralised systems is blockchain’s
capacity to facilitate direct, peer-to-peer transactions without intermediaries, potentially
eliminating correspondent banking fees (Deng, 2020).
5.2 The Role of Central Bank Digital Currencies (CBDCs)
The financial industry’s adoption of Central Bank Digital Currencies (CBDCs) could either
complement or compete with decentralized blockchain solutions. If governments successfully
integrate CBDCs into existing financial systems, blockchain’s disruptive potential may be
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curtailed, as state-backed digital currencies would offer similar benefits with greater regulatory
oversight (Catalini et al., 2021).
5.3 Geopolitical and Economic Implications
The rise of blockchain in cross-border payments has significant geopolitical and economic
consequences. The reliance on US dollar-dominated banking networks such as SWIFT has long
been a concern for emerging economies. Countries facing sanctions or financial restrictions,
such as Russia and Iran, have explored blockchain-based alternatives to bypass global financial
constraints (Liao and Shao, 2021). However, this decentralization also raises concerns about
illicit finance, regulatory evasion, and enforcement challenges.
6 Conclusion
Blockchain technology represents a transformative force in cross-border payments, offering
solutions to long-standing inefficiencies in cross-border payments. The technology provides
lower transaction costs, real-time settlements, enhanced security, and broader financial
inclusion. However, despite its potential, blockchain faces obstacles such as regulatory
uncertainty, cybersecurity threats, scalability concerns, and resistance from incumbents. The
PESTEL and SWOT analyses in appendix reinforce the need for a strategic, well-regulated
adoption of blockchain in cross-border payments. Governments must establish clear regulatory
frameworks, financial institutions should embrace technological integration, and businesses
must assess the risks and rewards of adoption. The extent of disruption will depend on whether
financial institutions choose to integrate or resist blockchain-based solutions. If fully embraced,
blockchain could revolutionise cross-border payments, making them faster, cheaper, and more
accessible. However, failure to address regulatory and security challenges may allow traditional
financial systems to retain dominance.
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7 Appendix
7.1 Table 1 - SWOT Analysis
➢ Strength: ➢ Weakness:
• Lower transaction costs compared to • Scalability limitations, especially in
traditional banking (Vijaya et al., 2023) public blockchains (Deng, 2020)
• Fast settlement times, reducing delays in • Regulatory uncertainty, making
cross-border payments (Javaid et al., compliance difficult for financial
2022) institutions (Chishti and Barberis, 2016)
• Decentralization, reducing dependence • Security vulnerabilities, including smart
on banks and payment processors. contract bugs and cyberattacks (Vijaya et
• Immutable ledger, preventing fraud and al., 2023)
enhancing security (Qiu et al., 2019) • High energy consumption in PoW-based
blockchains (Liao and Shao, 2021)
➢ Opportunities: ➢ Threats:
• Financial inclusion for the underbanked • Resistance from banks, as blockchain
in emerging markets. disrupts traditional revenue models
• Integration with AI and IoT, enabling • Geopolitical risks, with some nations
smart finance solutions (Javaid et al., using blockchain to bypass economic
2022) sanctions (Liao and Shao, 2021)
• Regulatory advancements, which may • Competition from Central Bank Digital
provide clearer guidelines and boost Currencies (CBDCs), which may
adoption overshadow private blockchain solutions
• Interoperability solutions, allowing • Cyber threats, including 51% attacks and
different blockchains to work seamlessly ransomware using cryptocurrencies (Qiu
together et al., 2019)
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7.2 Table 2 - PESTEL Analysis
➢ Political Factors: • Governments have varying approaches to
blockchain regulation. Some encourage
innovation, while others impose
restrictions due to concerns over financial
crime and monetary control (Chishti and
Barberis, 2016).
• Regulatory bodies struggle to balance
privacy and security with compliance and
oversight in blockchain-based payments.
➢ Economic Factors: • Blockchain reduces transaction fees and
eliminates intermediaries, making cross-
border payments cheaper (Vijaya et al.,
2023)
• Developing nations benefit from
financial inclusion through blockchain-
based payments.
➢ Social Factors: • Growing demand for cashless
transactions and digital financial services
favours blockchain adoption (Javaid et
al., 2022)
• Public distrust of centralized financial
institutions pushes businesses and
individuals toward decentralized
payment solutions.
➢ Technological Factors: • Scalability and interoperability remain
major technical challenges for blockchain
payments (Qiu et al., 2019)
• Cybersecurity threats, including hacks
and smart contract vulnerabilities, pose
significant risks (Deng, 2020)
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➢ Environmental Factors: • High energy consumption in proof-of-
work (PoW) blockchains (e.g., Bitcoin)
has led to regulatory scrutiny and bans in
some countries (Liao and Shao, 2021)
• Eco-friendly alternatives like proof-of-
stake (PoS) offer solutions for sustainable
blockchain adoption.
➢ Legal Factors: • Lack of regulatory uniformity across
jurisdictions complicates global
blockchain adoption (Chishti and
Barberis, 2016)
• AML compliance adds additional costs to
blockchain-based financial institutions
(Liao and Shao, 2021)
Page 14 of 16
8 References
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