Cross-border innovation and payment systems
Cross-border payment values are projected to increase from US$190tn in 2023 to US$290tn by 2030. Current fees average 1.5% for corporate transfers and reach 8.4% for individual remittances, representing costs up to 10 times higher than domestic payments.
Three primary vehicles drive tokenised cross-border payments, each with distinct advantages and limitations. Stablecoins, cryptocurrencies tied to stable assets like fiat currencies or government bonds, offer reduced fees and conversion costs with near real-time settlement.
However, challenges in maintaining full backing can lead to instability, as demonstrated by recent high-profile stablecoin failures.
Central bank digital currencies (CBDCs) provide enhanced transparency and streamlined transactions but remain experimental. These digital versions of fiat currencies raise potential privacy concerns and could unbalance the financial system.
Tokenised deposits, representing digital tokens of large-volume bank deposit balances, facilitate rapid cross-border transfers within private or permissioned public blockchains established by approved bank consortiums.
The cross-border token transfer process follows a precise sequence. A party initiates a fund transfer by substituting monetary value with a unique token.
This token transmits across a secure network to the receiving party, who redeems it for equivalent value in local currency. Critical transaction data, including KYC/AML compliance details, remain securely logged on the network, available to authorised parties.
This streamlined approach operates continuously, unaffected by traditional banking hours and time zone differences.
Major banks have developed proprietary platforms implementing these systems. Citigroup’s treasury services division launched Citi Token Services for continuous cross-border payments using blockchain technology and smart contracts.
JPMorgan’s Kinexys platform utilises the Ethereum blockchain for peer-to-peer information sharing and continuous settlement.
Digital identity and healthcare management
Online fraud cost US consumers and businesses US$12.5bn in 2023, with digital fraud rates increasing 80% above pre-pandemic levels. Identity theft affects 73% of surveyed consumers, driving demand for secure verification methods.
Generative AI and deepfakes compound these challenges by making synthetic identities more sophisticated and difficult to detect.
Tokenised credentials create portable digital IDs, securing birth certificate information, passport details, and biometrics in digital wallets. Users authenticate identities through tap-and-go interactions, selecting specific details for different situations.
Corporate applications expedite client onboarding by securing organisational information required for know-your-customer and anti-money laundering compliance.
In e-commerce, tokenised biometrics hold potential for reducing return rates. With 25% of online apparel purchases returned, tokenising personal measurements could improve size-matching accuracy. The technology extends to gaming and regulated goods industries through secure age verification processes.
Healthcare faces unique challenges with fragmented data infrastructure leading to operational costs and potential compromises in patient care.
LexisNexis Risk Solutions’ Gravitas Token solution demonstrates tokenisation application in healthcare, using algorithms to de-identify and link patient data for clinical research without compromising privacy.
Protected health information tokenisation enables patients to control medical data access through programmable tokens configured for specific contexts or timeframes.
This addresses interoperability issues where medical records scatter across platforms, impeding healthcare provider access to complete patient information.
Jorn Lambert, Chief Product Officer at Mastercard, says: “To make the token economy work for consumers — for any use case — it’s essential to have a secure, interoperable and standardised method for people to identify and authenticate themselves before any value is exchanged.
“That’s the idea behind the Mastercard Payment Passkey Service. It replaces passwords and one-time codes with device biometrics, which cannot be guessed, shared or stolen.”