Next-Gen Cross-Country Payment Platform: Blockchain-Powered International Payments

In today's interconnected world, cross-border transactions are essential for international trade, remittances, and financial interactions. Current payment platforms evolved decades ago and continue using the same old-fashioned method often suffer from inefficiencies, high costs, and delays; leaving individuals and businesses longing for a more efficient and cost-effective solution.

After extensive research on various technologies and solutions, I have developed a game-changing architecture, based on blockchain technology. This solution has the potential to revolutionize how we manage current cross-border payments.

In this blog, we'll explore a brief idea of implementing a blockchain-powered cross-border payment system. I have considered Amazon Managed Blockchain Service to design this solution, and it is a hyperledger-based solution.

Current Traditional Cross-Border Payments boundaries:

Before delving into the design of the new solution, it is important to understand some of the key issues associated with traditional cross-border payment systems. These problems include:

High Transaction Costs:

Conventional cross-border payment systems include numerous intermediaries like correspondent banks, which charge fees at different stages of the process. These fees can accumulate, making transactions expensive for individuals and businesses.

Slow Transaction Speed:

International transactions often require several days to complete due to the complex routing and settlement processes involving multiple banks and financial institutions. Delays can impact business operations and limit financial flexibility.

Lack of Transparency:

Traditional systems often lack transparency in terms of fees, exchange rates, and processing times. Customers might not have a clear understanding of the total cost or the status of their transaction.

Risk of Errors and Fraud:

The involvement of multiple intermediaries increases the risk of errors, discrepancies, and fraud during the transaction process. This can lead to funds being lost or delayed.

Limited Working Hours:

Traditional banking systems operate within specific business hours, leading to further delays for cross-border transactions that fall outside these hours.

Inconsistent Payment Hours:

Due to time zone differences and varying business hours, some international payments can only be processed during limited windows, leading to additional delays.

Vulnerability to Economic and Political Changes:

Economic or political changes in a country might have an impact on the stability and availability of cross-border payment services.

Why Blockchain based:

Some of my colleagues have expressed the need for blockchain technology while there are already available other options such as VISA Direct, Western Union, and Open API from Banks and questioning the necessity of this new solution. They are concerned that it may only replicate the functions of the existing alternatives. In some way It is true but if you look at proprietary solution like VISA Direct, it works only when the debit/credit card is issued with VISA, Western Union have its own limitation like limits in the transactions and it is not made for account to account transfer, Open API is a kind of proprietary solution from the individual bank that has its own facilitation issues like  authentication, authorization, and message integrity etc.,

However, the key advantages of a blockchain-based solution are decentralization, transparency, and immutability. These characteristics help to establish trust and confidence among all parties involved.

Reduced Transaction Fees:

Blockchain operates by utilizing multiple nodes. Those who become part of the network will possess their individual nodes, and the cost associated with this will be charged to their respective banks. A minimum maintenance fee will be applied by the central hosting company, which will not be dependent on transaction volume. Since there are no multiple hops involved, transaction fees can be noticeably lowered.

         Immutability:

Once data is recorded on the blockchain and confirmed by the network's consensus mechanism, it becomes part of the permanent historical record. It cannot be deleted or modified without the consensus of the majority of the network participants, which is highly unlikely in a well-established and secure blockchain network.

         Transparency: 

Every transaction on a blockchain is recorded in a transparent and immutable manner. This transparency enhances accountability, reduces the risk of fraud, and ensures that both parties have a clear view of the transaction's status.

         Decentralization:

Blockchain networks are typically decentralized, meaning that copies of the blockchain ledger are distributed across many nodes in the network. This distribution makes it extremely challenging for a single entity of group of entities to alter the data on a majority of nodes and simultaneously. 

         Security:

In a blockchain, each block contains a cryptographic hash of the previous block's data, along with its own data. This creates a chain of blocks where each block's hash depends on the data in the previous block. If even a small change is made to the data in a block, its hash will change significantly. This linkage ensures that any tampering with the data in a block will be immediately detectable.

A High-Level Logical Representation:

The diagram below showcases the logical representation of a simple fund transfer requirement. Please note that this diagram does not cover the additional checks and systems on the participant banks' side like Financial Crime protection systems like Name Screening, Transaction Screening, AML, and Fraud Management systems that notify regulatory Banks which come under the jurisdiction of the respective countries.

To put this solution into action, there needs to be a centralized organization that facilitates payment technology and acts as the primary intermediary between banks. 

Personas

Sender	The person who is sending / Transferring the money.
Sender Bank	The Bank where the Sender hold the account and initiating Fund Transfer.
ChainRemit	Blockchain based payment platform.
Beneficiary	The person who receives the money.
Beneficiary’s Bank	The Bank where the Beneficiary hold the account.

Components Layer-wise

Sender Layer
1	Mobile Banking / Internet Banking / ATM / Branch	Channel services provided by the Sender’s Bank
Sender’s Bank Layer
1	Payment System	Platform developed/owned by Sender’s Bank which caters payment transactions.
2	Reconciliation System	Reconciliation system owned by Sender’s Bank
3	Settlement System	Settlement System owned by the Sender’s Bank, which helps to settle the Correspondent’s Bank by the end of the payment cycle, it could be via traditional SWIFT payment.
ChainRemit – Blockchain Platform
1	AWS Managed Blockchain Service	Hyperledger Blockchain managed by AWS and it is owned by ChainRemit Payment Platform
2	On-Boarding Application	Microservices based application owned by ChainRemit and deployed on AWS EKS.
3	Compliant Registration & Tracking Application	Microservices based application owned by ChainRemit and deployed on AWS EKS.
4	AML	Anti Money Laundering System owned by ChainRemit Payment Platform
5	Fee Collection System	Fee Collection System to collect commission from the Banks
6	Notification Engine	Microservices based application owned by ChainRemit and deployed on AWS EKS.
Beneficiary Bank
1	Payment System	Platform developed/owned by Sender’s Bank which caters payment transactions.
2	Reconciliation System	Reconciliation system owned by Sender’s Bank
3	Settlement System	Settlement System owned by Sender’s Bank, which helps to settle the Correspondent’s Bank by end of the payment cycle, it could be via traditional SWIFT payment.
Beneficiary
1	SMS, Email	Notification Medium which is provided by Beneficiary’s Bank

Fund Transfer Flow:

Below is the Fund Transfer Flow which shows how the Banks can be integrated with BlockChain-based technology. The diagram is self-explanatory and doesn't require any further explanation. 

Challenges expected during implementation:

Blockchain operates across borders, which can make it challenging to adhere to different regulatory requirements in various jurisdictions. Determining liability and legal recourse in case of disputes or errors can be challenging in a decentralized and global blockchain ecosystem. The immutability of blockchain transactions means that incorrect or fraudulent transactions are challenging to reverse. While this is a security feature, it can also make dispute resolution more complex. Overcoming these challenges requires a combination of technical innovation, regulatory adaptation, and user education. As the technology matures and more use cases are explored, solutions to these challenges are likely to evolve as well.

Conclusion:

By harnessing the unique attributes of blockchain technology, the global payment landscape can be transformed into one that is seamless, secure, and cost-effective. As this blueprint is refined and implemented, we can stand on the cusp of a future where international payments are no longer constrained by geographical boundaries, intermediaries, or excessive costs. The journey towards blockchain-powered international payments has begun, and the destination promises a world where financial transactions unite economies, empower individuals, and reshape the very fabric of global finance.