5 Reasons Why Remittance Will Continue to Flourish with Blockchain
The global remittance industry faces many problems that involve both the sending and receiving of money. The most critical of these issues includes large transaction costs and an opaque transfer process. The development of blockchain technologies offer potential solutions to these problems and may eventually overcome them.
With many startups now dedicated to these solutions, there is an opportunity for them to completely change how money is transferred internationally and on a global scale.
Today’s remittance industry is awash with processes that are convoluted and costly. Transferring funds from one person to another can be simple enough domestically, but once international borders become involved, it becomes horrendous. Many foreign workers work within these bloated systems because they are the only means to send funds back home to their families.
An immigrant living and working in France who wanted to send money to his family in Morocco doesn’t face a straight forward transaction if they try to go through bank transfer. Their money goes through seven different intermediaries before finally arrriving at the intended recipient. These intermediaries include:
- The sender bank
- The sender’s payment system
- The correspondent bank
- A foreign exchange
- Another correspondent bank
- The receiver’s payment system
- The receiver bank
Every time the money changes hands, the financial institution takes a cut. All of these fees are added to what the sender has to pay to move their money.
Using a Western Union or another Money Transfer Operator won’t be much better. While the fees will vary from region to region, they are rarely inexpensive. These companies keep track of four different categories of fees that the sender must pay.
- 1.5% payment fee
- 3.4% bank card fee
- 0.3% bank account fee
- 0.7% pay in-store fee
This inefficiency is one of the biggest targets for blockchain companies. Many of these fees can be removed because the intermediaries chagrin them wouldn’t be needed. Distributed ledger technologies would lower both fixed and variable fees.
In an ideal scenario, the only intermediaries would be the sending and receiving banks that would change the blockchain tokens back into fiat currency. Block chain is built to have a much more efficient network for approving transactions.
This decrease in fees wouldn’t have to compromise on speed and instead would make these transaction happen days faster than they currently do. While it is too early to see the full effect of cost savings, the speed advantage is has already been demonstrated.
Companies like ripple and Stellar have protocols that are making it possible to conduct these transfers within seconds. Traditional banks, on the other hand, have little hope of ever getting transfer times that aren’t measured in days.
Incredible speeds are not a result of decreased accuracy or security either.
Mobile wallets powered by blockchain
Emerging economies are the most eager to adopt these technologies. These areas have little tech infrastructure but high mobile penetration. The development of mobile wallets that run on blockchain would open up many of these markets.
These wallets wouldn’t require users to verify information to avoid money laundering, and bring an accessible way for these companies to access digital payments without a traditional bank account. Public ledgers automatically track every transaction, and there wouldn’t be any need for mobile intermediaries.
Integration with entrenched financial players
These emerging technologies likely won’t supplant current financial systems, but integrate them to build a more robust global market. Despite being a disruptive technology there aren’t any plans for blockchain to completely take over. These companies are already focusing on developing close relationships with large banks and financial institutions.
Disruptive blockchain firms like Ripple have already partnered with Western Union and MoneyGram to experiment with products centered around cryptocurrency. The Ripple later bought a $50 million stake in MoneyGram to solidify the partnership. Traditional Money Transfer Operators have already positioned themselves to profit from this rise in technology. These giants see the potential for a more efficient business model and an opportunity to access millions more customers.
Blockchain is getting set to majorly disrupt the remittance payment industry. This strategic technology has strong offerings for all of the biggest problem that currently face the market. Developing blockchain further will allow the global economy to become even more interlinked and allow more people to participate in money exchange and transfer.
The questions that blockchain faces are whether or not these companies will be able to deliver on all of the promises that the technology has boasted. As a blockchain heavy future comes into view it will also become increasingly important to start to ease some of the friction that governments and society have towards it. For these companies to flourish, they will need better regulations that encourage its adoption and increased public awareness to its benefits.