Disclaimer: I'm not a developer and just starting to learn Stellar and reading the documentation

The way (international) payments work (simplified):

  • When making a purchase on an app, the payment gateway is not actually settling the payment... it is passing the order to your bank (or other merchant account).
  • your bank and your vendor's bank communicate to each other either directly or through intermediary banks... if the payment is international, messages are sent via SWIFT
  • SWIFT is just for messaging, 'cause the payment is settled through central RTGS system (controlled by the Central Bank of the currency in which the payment is settled)

(Please correct me if I said something wrong, but roughly this is how I've understood the whole thing works)

Now looking at Stellar.org documentation ( https://www.stellar.org/developers/guides/get-started/index.html ), my understanding is that Stellar is an additional layer between mobile wallets/online banking apps/payment services/etc and all the rest...

So, here a couple of question: is Stellar being a payment gateway that talks to the merchant banks? And how does it manage to reduce costs since it is adding an extra layer in the whole process?

3 Answers 3


Assume you want to convert USD to EUR.

Send USD (Fiat) to anchor, anchor gives you back USD Token.

Trade USD Token with XLM and then trade again to buy EUR Token.

(XLM acts as bridge currency, you can directly trade USD Token with EUR Token if there is market volume or else Stellar will ensure the trade using Path Find algorithm.)

Anchor converts EUR Token to EUR (Fiat)

  • Thanks! So how does the EUR (Fiat) get to the recipient? Is it that once I buy EUR (Token), the anchor directly credits EUR (Fiat) to the recipient’s account? Or?
    – moumous87
    Jan 19, 2019 at 0:12
  • The anchor can redeem your token and credit the Fiat to the user (provided the user has registered with the anchor). So as service provider, you can take care of all these steps and the user need not worry about these things. So the cost is Stellar fees for all transactions + anchor fee
    – jagstock
    Jan 23, 2019 at 1:19

Best understanding I have is that XML is used as a bridge currencies. So when I buy something, I'm not sending, say, 10USD but it's XML equivalent amount. The counterpart will receive the XMLs almost instantaneously and they will convert it to their preferred currency... still, I'm not sure if this is it...

  • I guess you are talking about 3 steps of (1) USD->XML, then (2) XLM sent abroad, and then (3) XLM->USD. It does NOT happen that way.
    – cesarm
    Jan 17, 2019 at 2:04
  • No conversion is needed, as remittance is just a sending/payment action. You just pay out 10USD on your account on Stellar, and then your friend gains 10USD on his account. (Prerequisite of the payment action: You have to hold at least 10USD on your account.) At the same time, the transaction fee of 0.00001 XLM is deducted from your account.
    – cesarm
    Jan 17, 2019 at 2:06

In short, Stellar has a fixed, way lower transaction fee (fixed at 0.00001 XLM, or around 0.000001USD), whereas traditional cross-boarder remittance costs around 5-7% on the amount being sent.

The 5-7% astronomical cost is to cover the work at the sending bank, receiving bank, and also any possible intermediaries. There is no single computational system for these parties to investigate the people and their money (i.e. KYC, anti money laundering). The processes could last hours or a day, so they charge you that much and it takes a few days to receive the fund.

Adding the Stellar layer is a one-off setup cost, while the running and operation costs of a computational system should be rather limited.

Assuming the technology is mature, Stellar can securely help to reduce the operation costs largely (and also shorten the waiting period from few days to seconds or minutes).

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