How crypto is reshaping cross-border transactions for SMEs

International transactions have been a headache for many companies because of the high complexities involved in the transfer of funds. The speed of transaction, exchange rates, cost of transactions and other complexities make it tough for SMEs to do business. However, with the involvement of crypto, things are taking a turn-around.

You see, cryptocurrencies have been gaining popularity among many people, with statistics showing over 560 million crypto owners in 2024. Different tokens come with their advantages, some being synonymous with speed while others are known for their many uses. Take Ada, for example. This token is being used all over because of its high security, smart contracts and sustainability. Additionally, ada price makes it friendly to investors, making it easier for businesses to incorporate into their functions.

Well, this article will be explaining more about how cryptocurrencies are changing the trajectory of cross-border transactions.

Lower transaction cost

One of the things that is a huge menace in cross-border payments is the cost associated with a transaction. Actually, the World Bank reports that the average cost of sending money across borders is around 6.3% of the transaction value. Sadly, when it comes to some developing countries, the fee can be even higher.

But what causes high fees when it comes to cross-border transactions? You see, banks usually have hidden transaction fees that most people rarely know about. According to Rohit Chopra, the director of the Consumer Financial Protection Bureau (CFPB), large banks often have exaggerated fees for services that cost lower (almost nothing) to deliver.

For instance, a 2023 study by Capital Economics estimated that US consumers and SMEs paid over $17.9 billion in fees for foreign exchange transactions. Out of those, 32% ($5.8 billion) were hidden international fees. A good example of these fees is an out-of-network fee that is charged when a transaction is declined in real time.

Another type of fee is the exchange rate markups that financial institutions or payment processors add to the exchange rate in a bid to increase their profit margins. These markups are also used to cover operational costs and risk management.

Then comes the digital assets. The only fees charged are processing fees, which work for international transactions the same way they do for local payments. Crypto is a form of borderless payment, meaning that international borders do not change any form of operation for the payments. In fact, the transaction costs for crypto payments can range from 1% to as low as 0%.

Enhanced transparency

Transparency is a key issue when it comes to any type of transaction as it can impact profit margins as well as transaction costs. As mentioned above, financial institutions usually have many hidden costs that can be detrimental to merchants, especially when it involves large transactions.

According to a report by Morning Consult for Wise, many Americans are impacted by hidden fees when using credit cards (36%) or services from financial institutions (27%). In fact, around 62% of the study’s respondents said that they have reduced their trust in financial institutions because of their experience with hidden fees. Wise also revealed that at least 92% of 25 banks in the EU were not transparent about their currency conversions.

The lack of transparency causes unnecessary worry among business owners. So, instead of focusing on business growth, many entrepreneurs spend a lot of valuable time on vague payment processes. However, this changes with crypto.

You see, crypto transactions are very transparent, from the beginning of a transaction to the end of it. All transactions occur inside a shared ledger which is also immutable. With crypto transactions, you can have a clear audit trail, enhancing trust among participants in the financial ecosystem.

Speedier transactions

There is nothing that annoys businesspeople than having to wait for a transaction to complete so that the product you asked for can be released. This just means that you cannot work on immediate orders since the transaction is still in process. This happens mostly with international bank transactions that can take up to 5 business days. Imagine having to wait until the weekend is over so that you can initiate a bank transfer.

In some cases, cross-border transactions can even take two weeks (or more) to be complete, whenever an error occurs. Can you imagine the pain of waiting!

Cross-border transactions, through traditional banking systems, take a long time to process because of the involvement of multiple intermediaries. You have to deal with correspondent banks, clearinghouses and local financial institutions. Each institution adds time and cost to the transaction.

For SMEs, these delays can:

Complicate supply chain management.
Disrupt cash flow.
Create issues with the payment of employees and vendors.

When you are operating under tight cash reserves, then, you will really feel the pinch in delay.

However, when it comes to crypto payments, transactions are almost instantaneous. In fact, tokens like Solana and Ripple have been termed as the fastest cryptocurrencies. For slower tokens like Bitcoin, the transaction can take up to a couple of hours, but that remains quicker than all the other forms of payment.

In conclusion, you can agree with us that cryptocurrencies are changing the whole trajectory of cross-border payments. These digital payments are dealing with the issues that have been there, courtesy of traditional payment systems, and making transactions much easier. The costs and transparency of transactions, which have been a menace for a long time, are now being dealt with, as well as the speed. In the coming days, you can be sure that more businesses will have embraced this innovative form of payment.