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Cryptocurrencies Versus Central Banks: The Race for Faster, Cheaper International Payments

By Frances Coppola

Advocates of cryptocurrencies often claim there are two big advantages over mainstream payment providers for international payments: they are fast, and they are cheap. When international businesses are faced with a choice between waiting 24 hours or more for a wire transfer to settle via ACH, or paying Fedwire's fees for same-day settlement, bitcoin can seem like a good alternative.

But recently, bitcoin has suffered severe capacity problems that have caused transaction delays and high fees. These are due in part to its popularity as a high-yield investment, which in 2017 caused its price to rise so high that some people compared it to the "tulip mania" in 17th century Holland.1 Yves Mersch, a board member of the European Central Bank (ECB), joked that bitcoin transaction speeds were so slow that if you bought a bunch of tulips, they would wilt by the time the transaction was confirmed.2


Meanwhile, mainstream payments providers have been working to improve their service for quite some time. The U.K.'s Faster Payments service, introduced in 2008,3 settles most sterling transactions in a matter of seconds and handles over 1.7 billion transactions per year.4 Similarly, the U.S.'s ACH introduced same-day settlement for most U.S. dollar transactions in September 2017. And in November 2017, the Single Euro Payments Area (SEPA) Instant Credit Transfer (SCT-Inst) system, which can settle low-value euro transactions (up to 15,000 euros) within 10 seconds, went live in eight European countries.5


U.K. "Faster Payments": Moving Towards Instant International Payments


In a recent speech, Bank of England Governor Mark Carney noted that bitcoin was much slower and more expensive than the U.K.'s payments systems. Carney explained: "If you use a debit or credit card in the U.K., the transaction is completed in seconds and without exchange rate risk. In contrast, bitcoin users can face queues of hours. Those wanting to get to the front to make time-pressing payments – for last orders, for example – need to offer up a transaction fee sufficiently large to persuade bitcoin ‘miners,' who verify and process transactions, to do so quickly. The fees paid vary through time, but reached £40 in late 2017. Fees are currently around £2, but even that is expensive relative to cash, cards or online payments, which cost the retailer around 1.5 pence, 8 pence and 19 pence, respectively."6


For businesses making low-value (below £250,000) sterling payments in the U.K., Faster Payments appears to offer a significantly faster and cheaper payment service than any cryptocurrency. However, Faster Payments does not currently handle cross-border transactions, though it can make payments to non-sterling accounts in participating banks (the banks handle the FX conversion).7


Nevertheless, according to Carney, the Bank of England has plans to improve cross-border payments. "The Bank is leading by the adoption of emerging global standards for payments messaging and by working with other central banks and the private sector to explore the scope for cross-border payments in central bank money through synchronized national RTGS systems," he said. "This all could increase the speed and safety, as well as lower the costs, associated with cross-border transactions to support purchases and travel overseas."


ECB Plans Instant Settlement of All Euro Payments


SEPA's faster payments system, SCT-Inst, is currently available in Austria, Estonia, Germany, Italy, Latvia, Lithuania, the Netherlands, and Spain. Euro payments of 15,000 or less can now be settled within 10 seconds both within and between those countries.8


SCT-Inst only handles euro transactions, but it can make payments to non-euro accounts in participating banks. Transaction fees are set by the participating banks.9 It will eventually be rolled out to all SEPA countries – i.e., the 28 members of the European Union plus six other European states.10


But perhaps even more importantly for international businesses, the TARGET Instant Payment Settlement system (TIPS) is scheduled to go live in November 2018.11 While the ECB's TARGET2 real-time gross settlement system settles euro payments in real time, payments are only processed during its hours of operation, or 7 am to 6 pm Central European Time. Outside those hours, payments are batched and held until the next operating window. TIPS, however, will extend TARGET2's hours of operation to 24/7, so that euro transactions anywhere in the world can be settled in real-time.


For businesses, this could mean that cross-border payments in euros take no more than a few seconds to complete.12 This is substantially faster than settlement speeds for most cryptocurrencies. And according to ECB board member Mersch, it will be at a fraction of bitcoin's cost – 0.2 euro cent per transaction, as opposed to bitcoin's variable transaction fees which in recent months have been as high as $25 per transaction.13


Furthermore, TIPS is potentially capable of handling transactions in multiple currencies, but there is uncertainty as to when that capability will be introduced. For international businesses trading with European countries that are not euro members, this could be a boon.



There seems to be something of a race between cryptocurrencies and central bank RTGS systems to develop the fastest, cheapest cross-border transaction processing. In Europe, it looks as if central banks might be winning the race, while the U.S.'s ACH is still some distance from providing real-time settlement. However, the cryptocurrency universe is expanding fast; faster, lower-cost alternatives to bitcoin are appearing. Thus, even if European central bank RTGS systems remain the settlement vehicle of choice, international businesses may prefer to use cryptocurrencies for international payments in U.S. dollars to non-European countries.

Frances Coppola - The Author

The Author

Frances Coppola

With 17 years’ experience in the financial industry, Frances is a highly regarded writer and speaker on banking, finance and economics. She writes regularly for the Financial Times, Forbes and a range of financial industry publications. Her writing has featured in The Economist, the New York Times and the Wall Street Journal. She is a frequent commentator on TV, radio and online news media including the BBC and RT TV.


1. “Bitcoin has gone beyond the absurdity of the 17th-century tulip bulb mania – Dennis Gartman,” CNBC;
2. “Virtual or Virtueless? The Evolution of Money in the Digital Age,” European Central Bank;
3. “History/Timeline,” Faster Payments;
4. “Statistics,” Faster Payments;
5. “SEPA Instant Credit Transfer (SCT Inst) payment scheme goes live,” InstaPay;
6. “The Future of Money,” Bank of England;
7. “Faster Payments.” Faster Payments;
8. “EPC scheme to make real-time payments in SEPA,” European Payments Council;
9. Ibid.
10. “Countries in the SEPA zone,” Allied Irish Banks;
11. “TARGET Instant Payment Settlement,” European Central Bank;
12. Ibid.
13. Virtual or Virtueless? The Evolution of Money in the Digital Age,” European Central Bank;

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