Implementation strategies for blockchain technology in cross-border payment settlement systems between banks

Posted: Oct 05, 2024

• Dr. Prof. Abigail Kumar
• Dr. Prof. Ava Wei
• Dr. Prof. Elijah Clark

Abstract

This research presents a comprehensive framework for implementing blockchain technology in cross-border payment settlement systems between banking institutions, addressing the critical gap between theoretical blockchain potential and practical implementation challenges. Traditional cross-border payments suffer from significant inefficiencies including extended settlement times averaging 2-5 days, high transaction costs ranging from 3-10% of transfer value, opacity in transaction tracking, and vulnerability to fraud and compliance violations. While blockchain technology has been widely recognized as a potential solution, existing literature predominantly focuses on either technical blockchain mechanics or high-level strategic discussions without providing actionable implementation pathways that address the complex regulatory, interoperability, and scalability requirements of international banking systems. Our methodology introduces a novel three-dimensional implementation framework that simultaneously addresses technical architecture, regulatory compliance, and business process integration through a phased adoption approach. We developed and tested a hybrid blockchain architecture combining permissioned distributed ledger technology with existing financial messaging systems, creating a unique interoperability bridge that maintains backward compatibility while enabling real-time settlement capabilities. The research employed a multi-method approach including system prototyping, regulatory gap analysis across multiple jurisdictions, and stakeholder engagement with banking professionals from 15 international financial institutions. Our findings demonstrate that a carefully orchestrated implementation can reduce settlement times from days to minutes while decreasing transaction costs by 60-80%, without requiring complete infrastructure overhaul. The framework addresses critical implementation challenges including cross-jurisdictional regulatory compliance, legacy system integration, scalability concerns, and governance models for multi-bank blockchain consortia. This research provides the first comprehensive, empirically-validated implementation strategy that bridges the gap between blockchain potential and banking reality, offering financial institutions a practical roadmap for digital transformation in cross-border payments.