Investigating blockchain-based smart contracts for cross-border payment settlement, regulatory compliance and risk reduction in international finance

Ayodele, Emmanuel and Oye, Micheal Aduraseyi and Alimi, Bukola Christianah and Obitolu, Samuel Bolade (2025) Investigating blockchain-based smart contracts for cross-border payment settlement, regulatory compliance and risk reduction in international finance. International Journal of Science and Research Archive, 16 (2). 052-073. ISSN 2582-8185

In an increasingly globalized financial ecosystem, cross-border payment systems continue to face persistent challenges, including high transaction costs, settlement delays, regulatory fragmentation, and exposure to counterparty risk. Traditional banking infrastructures, reliant on correspondent banking networks, are often opaque, inefficient, and vulnerable to compliance breaches and fraud. This study investigates the application of blockchain-based smart contracts as a transformative solution to these longstanding inefficiencies in international finance. From a macro perspective, blockchain’s distributed ledger architecture offers enhanced transparency, immutability, and consensus-driven validation, presenting a robust framework for automating and securing cross-border settlements. The research evaluates the operational mechanisms of smart contracts self-executing code embedded within blockchain protocols that facilitate real-time, trustless transaction execution and regulatory rule enforcement across jurisdictions. A key focus is the integration of Know Your Customer (KYC), Anti-Money Laundering (AML), and Central Bank Digital Currency (CBDC) compliance checks within programmable contracts to ensure legal adherence while reducing operational bottlenecks. The study also explores case applications by global fintech firms and intergovernmental consortia experimenting with blockchain for real-time gross settlement (RTGS), payment-versus-payment (PvP), and delivery-versus-payment (DvP) models. Findings indicate that blockchain-based smart contracts significantly lower cross-border transaction costs, reduce settlement times from days to minutes, and enhance auditability for regulators. However, interoperability, legal recognition, and jurisdictional variance in digital asset treatment remain unresolved obstacles. The paper concludes by proposing a hybrid governance framework combining decentralized architecture with regulatory oversight, enabling secure, compliant, and frictionless global payment infrastructure.