By 
Fintech money transfer providers are significantly reducing the cost of cross-border payments compared with traditional bank transfers, while stablecoin-based transactions continue to face challenges involving conversion fees, liquidity and access to funds, according to research by the Bank for International Settlements (BIS).
The findings, presented in a new BIS working paper, compare the costs of three cross-border payment channels: traditional banks, fintech money transfer operators (MTOs) and stablecoin-based transfers. The research highlights persistent inefficiencies in international payments and examines how different payment models affect transaction costs for individuals and businesses.
Although stablecoins are attracting growing interest as an alternative for international transfers, the researchers found that their potential cost advantages depend on factors beyond blockchain technology, including market liquidity, access to traditional currencies, regulatory compliance and the reliability of intermediaries.
Fintech money transfer operators reduce transaction costs
The BIS researchers found that fintech MTOs substantially reduce cross-border payment costs compared with traditional retail bank wire transfers.
In the sample of bank transactions examined, foreign exchange markups ranged from approximately 2 per cent to 4.7 per cent, even for highly liquid currency pairs. These markups were recorded before accounting for explicit wire transfer fees, indicating that the overall cost of conventional international bank transfers can be significant.
Fintech transfer costs were considerably lower and declined substantially as a proportion of the amount sent when transfer sizes increased.
For transfers of $10,000 originating in the United States, median costs across developed-market currency groups were approximately $40 to $60, according to the paper. However, the researchers noted that some destination currencies remained considerably more expensive, highlighting differences in pricing across international payment corridors.
The findings suggest that fintech providers can offer a more cost-effective option for cross-border transfers, particularly where their pricing structures and foreign exchange services reduce the charges associated with traditional banking channels.
Stablecoin transfers face conversion and withdrawal fees
Despite growing interest in stablecoins as a means of facilitating international payments, the BIS research identified several costs that can limit their competitiveness.
Cross-border stablecoin transfers generally require funds to be converted between traditional fiat currencies and digital tokens. This process may involve crypto exchanges and other intermediaries that charge trading, conversion and withdrawal fees.
These additional charges can increase the total cost of a transaction, reducing the potential savings associated with transferring value through blockchain-based systems.
Access to funds can also involve delays. Recipients may need to convert stablecoins into local currency and wait for subsequent bank processing before the money becomes available in their bank accounts.
Consequently, the speed of transferring a stablecoin between digital wallets does not necessarily translate into equally fast access to spendable funds.
The research also highlighted limited liquidity between US dollar-denominated stablecoins and non-US currencies. Thin markets can make conversions more expensive and constrain the volume of transactions that can be executed efficiently.
Capital controls complicate stablecoin cost comparisons
The BIS paper found that stablecoins can offer favourable foreign exchange pricing on transfers from developed markets to certain emerging-market economies. However, the researchers cautioned that this advantage may reflect distortions associated with capital controls rather than an inherent technological benefit.
Capital controls and restrictions affecting access to foreign currency can influence exchange rates and the pricing available through different payment channels. As a result, apparently favourable stablecoin conversion rates may not represent a sustainable cost advantage under normal market conditions.
Limited market depth and volatile pricing also restrict the scale at which some stablecoin-based transfers can operate. Even where a transaction appears inexpensive, the economics may change when larger amounts need to be converted or when liquidity is insufficient.
These constraints complicate comparisons between stablecoins, fintech transfer services and traditional banks. Assessing the full cost of a payment requires considering conversion rates, intermediary charges, withdrawal fees, liquidity and the recipient’s ability to access the funds.
Market liquidity and regulatory compliance remain critical
The research suggests that the competitiveness of stablecoin-based payments depends on the wider financial infrastructure supporting them, rather than blockchain technology alone.
As the researchers stated: “Ultimately, the competitiveness of stablecoins as cross-border payment rails depends not only on blockchain technology but also on market liquidity, reliable access to fiat currencies, regulatory compliance and trust in intermediaries.”
These factors remain important for financial institutions, payment providers and businesses assessing alternatives to conventional international transfers.
Stablecoins may offer advantages in certain payment corridors, but those benefits depend on the availability of liquid conversion markets, dependable on- and off-ramps to traditional currencies, and intermediaries capable of operating within applicable regulatory frameworks.
Fintech providers, meanwhile, have demonstrated the ability to reduce transfer costs relative to traditional retail bank wires, although pricing continues to vary by currency, destination and transaction size.
Cross-border payments remain a challenge for the financial sector
The BIS findings underline the continuing difficulty of making international payments both affordable and efficient. Traditional bank transfers can carry substantial foreign exchange markups and explicit fees, while fintech services have reduced costs in many cases. Stablecoin-based transfers introduce another option but can face additional expenses and operational constraints when converting funds into local currencies.
For businesses and consumers, the most cost-effective payment channel will depend on the corridor, transaction amount, exchange rate and fees charged throughout the transfer process.
As digital payment technologies evolve, the research points to the importance of evaluating complete transaction costs and the reliability of the supporting infrastructure rather than relying solely on the speed or technical design of a payment system.
Comments