The multi-rail future of cross-border payments

• Key insight: International finance is far too nuanced for a one-size-fits-all solution. 
• What's at stake: Stablecoins are frequently introduced as a means to reduce intermediaries, lower costs and increase transaction velocity. While they offer distinct advantages, they do not completely eliminate intermediaries, rather, they alter who those intermediaries are.
• Forward look: Because payment efficiency is highly dependent on the specific use case, financial institutions must first determine whether cross-border payments are a core strategic priority, and identify which specific payment types (P2P, B2B, B2C, etc.) and corridors align with their risk appetite and technological readiness.

The belief that stablecoins or any single digital asset will completely erase legacy infrastructure overlooks the deep-seated complexities of global finance. The market is maturing where each rail serves a purpose, and the type of cross-border payment being made may be better served by one over the other. 

Swift and traditional banking continue to modernize alongside their high-trust and institutional volume. Nonbank money service businesses, or MSBs, have successfully captured a lot of the high-volume, low-value retail and small-business market, and stablecoins are carving out an impactful niche in large-scale institutional trading and wholesale liquidity, while also serving as remittance alternatives for certain corridors. 

To capture market share in this new era, institutions must deliberately segment their approach by leveraging the upgraded ISO 20022 standards of legacy networks where trust is paramount, utilizing MSB partnerships for specialized retail corridors, and selectively piloting stablecoins or tokenized deposits where wholesale liquidity demands it. Institutions that navigate the strengths and limitations of all three will likely find success in cross-border payments.  

The bottom line is that international finance is far too nuanced for a one-size-fits-all solution. Navigating diverse jurisdictional regulations, currency conversions and fragmented processing systems makes cross-border payments inherently complex. 

Market segmentation by use case

There are broadly three segments of cross-border payments working to address long-standing friction in the United States:

1. The legacy stream: Propelled by Swift, traditional payment networks, the G20, and correspondent banking.
2. Nonbank money service businesses: Fintech and nonbank driven alternatives that are primarily digital based. 
3. Digital asset native firms: Platforms leveraging stablecoins and blockchain infrastructure.

Because payment efficiency is highly dependent on the specific use case, financial institutions must first determine whether cross-border payments are a core strategic priority, and identify which specific payment types (P2P, B2B, B2C, etc.) and corridors align with their risk appetite and technological readiness.

The legacy stream

Driven by competition and regulatory mandates from the G20, legacy financial systems have launched a massive, coordinated modernization of cross-border payments to transform what was once a slow, opaque and expensive process. Traditional networks and Tier-1 banks are replacing outdated text-based wires with the data-rich ISO 20022 messaging standard to automate compliance screening, while Swift GPI has introduced real-time tracking and Swift Go guarantees upfront fee transparency for retail and SME transfers. Simultaneously, the legacy framework is actively bypassing the cumbersome, multiday correspondent banking chain by integrating tokenized deposits and digital assets through blockchain consortiums and initiatives like the BIS-led Project Agorá. By interconnecting local, real-time domestic payment rails via multilateral hubs like Project Nexus and embedding live FX APIs and virtual accounts directly into corporate treasuries, the traditional banking core is transitioning from a fragmented black box model into a more 24/7, frictionless global settlement network. 

These upgrades may prove sufficient for many traditional banking use cases. These legacy cross-border payment networks offer regulatory certainty, global ubiquity and institutional security. Over decades, the correspondent banking model has established legal frameworks for anti-money-laundering and know-your-customer compliance across disparate jurisdictions, providing risk-averse commercial banks with a shield against impactful regulatory fines. Deep liquidity gives these legacy systems market capture on high-value, wholesale corporate treasury transfers, where multimillion-dollar transactions demand massive balance sheets rather than the retail-focused capabilities of fintech apps. Abandoning these core infrastructures can be financially prohibitive, often requiring millions to overhaul core systems.

The domain of money service businesses

Over the past decade, many large banks reduced their correspondent banking relationships due to rising compliance costs and low transactional volumes in high-risk jurisdictions, namely impacting remittances and retail payments. Nonbank MSBs like Wise, Western Union, Revolut and MoneyGram filled these gaps by building global APIs and proprietary, localized payout networks.

MSBs excel at high-volume, low-value P2P and micro-B2B remittances. By making cross-border payments their primary profit center, they have improved upfront transparency, lowered fees and absorbed local anti-money-laundering and know-your-customer compliance friction. These platforms particularly appeal to small businesses by offering automated reconciliation, invoicing flows and predictable pricing regarding the exact amount delivered to a vendor.

To optimize operational efficiency and protect their customer base, traditional banks are increasingly partnering with nonbank financial institutions to handle lower-value cross-border transactions. By utilizing specialized fintech networks, commercial banks can bypass the correspondent banking model and free up liquidity that would otherwise remain in pre-funded foreign currency accounts. These nonbank partners provide instant API-driven access to local, real-time domestic rails and mobile wallets globally, which allows banks to white-label this payment technology directly into their existing mobile apps. This collaboration also allows traditional banks to retain retail and small-business customers who require upfront fee transparency and real-time delivery, while simultaneously offloading the operational burdens of low-margin foreign exchange management and localized compliance screening to fintech infrastructure. It serves as an alternative for banks to still engage with cross-border payments through partnering. However, there's some concern around deposit shifts; many of these nonbanks operate bank-like products and services, and customers commonly making remittance payments may choose to store funds in these nonbanks over banks.  

The digital asset native firms

Stablecoins are frequently introduced as a means to reduce intermediaries, lower costs and increase transaction velocity. While they offer distinct advantages, they do not completely eliminate intermediaries, rather, they alter who those intermediaries are.

Stablecoin transactions rely heavily on centralized crypto exchanges, or CEXs, and market makers for fiat on-and off-ramps, introducing gas fees, exchange fees and withdrawal charges. Research has shown that for small-value transactions, stablecoins can still accrue costs. Namely, even if gas fees are far cheaper, the ultimate cost-benefit will be determined by a centralized intermediary doing the off-ramp that funds back into standard bank deposits. For small value payments, this can impact the overall cost of that payment. Also, because the settlement speed depends on the efficiency of the CEX off-ramp back into fiat bank deposits, which most corporations prefer, the instant benefit becomes more diminished. 

However, for large-value transactions, specifically among well-liquid corridors like USD to EUR, stablecoins can be more cost effective, especially for swaps. Cross-border payments with stablecoins specifically for institutional trading is the most immediate use case for financial institutions. Accordingly, American Banker data indicates that major U.S. banks are prioritizing large-scale B2B and institutional distributed ledger technology, or DLT, applications, such as wholesale payments and tokenized deposits, over consumer payout functionalities (Figure 1). Additionally, we've seen some businesses prioritizing stablecoin rails for their cross-border payment needs, as well as paying out employees (Figure 2). 

The future of cross-border payments

The divide between retail limitations and institutional viability underscores a broader notion around the modern financial landscape. There are more options for payment modernization, and different use cases may best benefit from different technological infrastructure. Cost savings are more dependent on payment type, size and volume than one tech solution being a total replacement for legacy systems. Diverse networks that can integrate with one another appear to be best for overall payment efficiency, resiliency, reliability and affordability.  

Moving money across borders will probably always be complicated, but the way we manage that complexity is shifting. There is no one-size-fits-all solution. Whether an institution capitalizes on Swift's modernized ledger, an MSB's localized API network, or a stablecoin's on-chain settlement will depend entirely on transaction size, corridor maturity, and specific customer needs.