Distributed ledger technology (DLT) has the potential to improve today’s slow, expensive, and opaque cross-border payment systems by enabling instant, transparent, and resilient settlements.

However, because DLT systems rely on the public Internet, they remain exposed to infrastructure-based attacks.

According to the Swiss National Bank (SNB), these vulnerabilities can be addressed through SCION (Scalability, Control, and Isolation on Next-generation Networks), a next-generation Internet architecture.

SCION can offer an ideal network infrastructure for next generation DLT-based cross-border payment systems, effectively mitigating critical network-layer vulnerabilities while also enhancing reliability and strengthening regulatory compliance and adaptability, the central bank says.

Challenges in current cross-border payments

Traditional cross-border payments are slow, costly, and hard to track. They rely on correspondent banking, where money passes through several intermediary banks, each charging fees and adding delay. Furthermore, currency conversions often go through the US dollar, increasing costs and complexity. Additionally, different time zones and banking hours slow things down even more, while the process’s opacity prevents customers from easily tracking costs or transaction status.

In response, SNB highlights the potential of DLT and digital currency to address these inefficiencies. DLT eliminates intermediaries and enables near-instant, 24/7 settlements. Furthermore, its shared ledger provides real-time transparency and auditability, while its decentralized structure offers greater resilience to local outages.

However, DLT systems that operate over the public Internet inherit the vulnerabilities that affect Internet-based platforms. These include the risk of infrastructure-level attacks, such as distributed denial-of-service (DDoS) attacks, where attackers overwhelm a website, server, or network resource with malicious traffic, and border gateway protocol (BGP) hijacking, where attackers maliciously reroute Internet traffic. These attacks can delay or disrupt information flow, potentially causing network partitioning by isolating participants.

What is SCION?

To address these vulnerabilities, SNB highlights SCION as a compelling solution. Originally developed by researchers at Switzerland’s ETH Zurich, SCION is an Internet architecture designed to improve security, reliability, and path control compared to traditional Internet routing.

On today’s Internet, data takes routes chosen automatically by routers, which can be unreliable or insecure, and users can’t see or influence them. In contrast, SCION lets users see and choose the path their data takes, each of which is cryptographically verified. It can also use multiple paths at once, maintaining connectivity even if one fails.

A key innovation in SCION is the isolation domain (ISD), which is a logical grouping of autonomous systems. These groups share the same security rules and trust authorities, and manage their own routing and cryptographic infrastructure. This prevents problems or attacks in one ISD from spreading to others, creating self-contained, secure zones across the SCION Internet.

A DLT-based settlement system on SCION

According to SNB, a DLT-based settlement built on SCION could combine the advantages of DLT with the robustness of SCION’s network design. This would effectively mitigate critical network-layer vulnerabilities but also enhance reliability, and improve regulatory adaptability.

For cross-border payments, each country or legal jurisdiction could establish a dedicated SCION ISD overseen by its financial regulator or central bank. National ISDs would interconnect between one another, supported by SCION’s secure inter-ISD communication through agreed trust anchors and peering links managed by ISD core nodes. Regulators would establish bilateral or multilateral agreements and embed these policies in their trust-root configurations to govern those peering links, ensuring that only messages that traverse authorized AS paths are forwarded.

This approach would introduce regulatory compliance at the network layer, and allowing regulators to enforce rules like anti-money laundering (AML), countering the financing of terrorism (CFT), and sanctions compliance directly without altering the blockchain’s core protocol. This structure allows secure, verifiable, and policy-compliant communication between countries while preserving complete sovereignty.

SCION has been developed by researchers at ETH Zurich since 2009. It is already deployed in production networks worldwide, underpinning the Secure Swiss Finance Network (SSFN), and used by SNB, the Swiss financial market services provider and exchange operator SIX, UBS and other banks for interbanking communications.

Upgrading cross-border payments

Efforts to modernize cross-border payments have accelerated globally in recent years. The European Union (EU) is currently working on enhancing cross-border payments within and beyond the bloc by enabling cross-currency settlement and linking its TARGET Instant Payment Settlement (TIPS) service with other fast payments systems.

In Southeast Asia, the Regional Payment Connectivity (RPC) initiative, launched in late 2022, seeks to make cross-border payments within the region faster, cheaper, and more efficient by connecting national payment systems through standardized QR code payments, and allowing transactions to be conducted directly in local currencies. The initiative includes most ASEAN member states, in addition to Japan, which is reportedly exploring the integration of its QR payment system into RPC, with full implementation by the end of 2025.

Finally, mBridge, initially led by the Bank for International Settlements (BIS), is a multiple central bank digital currency (CBDC) platform developed to support real-time, P2P, cross-border payments and foreign exchange (FX) transactions using CBDCs. It supports jurisdiction-specific policy and legal requirements, regulations, and governance needs, and is backed by several central banks, including the Hong Kong Monetary Authority, the Bank of Thailand, and the Central Bank of the United Arab Emirates (UAE).

Soaring cross-border payment volumes

The retail cross-border payments industry, comprising consumer-to-consumer (C2C), business-to-business (B2B), and consumer-to-business (C2B) transactions, had a global total addressable market (TAM) of US$40 trillion in 2024, according to FXC Intelligence data.

By 2032, that market is set to have a TAM of US$62.3 trillion, representing a 56% increase from 2024, and a compound annual growth rate (CAGR) of 5.7%. This growth will be fueled by innovations in digital payments and enhancements using technologies, including artificial intelligence (AI), and blockchain. This will continue to drive costs down and reduce processing times, ultimately incentivizing greater flows.

Furthermore, increased adoption of digital wallets, including PayPal, AliPay and Apple Pay, will continue to fuel deeper penetration across both C2B and C2C transactions.

Featured image: Edited by Fintech News Switzerland, based on image by sodawhiskey via Freepik