How Blockchain is Redefining Money Transfer
Each year, people send billions of dollars to their friends and family members back in their home countries. Leading players in the global remittance market are e-to-flourish-with-bloccompanies like Western Union and MoneyGram who provide rapid cash transfers. The development of the blockchain and the increasing utility of cryptocurrency offer to revolutionize money transfers by saving time and money and increasing the transparency, security, and convenience of the entire process.
By 2022, global remittances are expected to top $1 trillion, increasingly steadily by about 12% each year. Business-to-business (B2B) transfers were approximately $15.5 trillion in 2018, climbing by 5% each year. Much of this is still sent the traditional way, in cash, via Western Union outlets to agents worldwide, or using the banking system. The Blockchain is a type of distributed ledger technology (DLT) that records, shares, and synchronizes transactions for all to see. Global remittance using the blockchain offers to make this entire industry much more efficient in these five ways:
- The blockchain saves time. Aside from Western Union, people typically rely on archaic banking systems with multiple intermediaries. This means that you’re confined to business days, banking hours, and the actual time to complete the transaction. Comparing a sampling of blockchain transfers to World Bank transfers found that sending remittances on the blockchain was 388 times faster than the bank.
Part of the efficiency comes from the technology itself. It doesn't take much time to post a digital transaction record, verify the funds, and digitally transfer them to the recipient. The rest of the time saved comes from the fact that there are simply fewer steps and potential pitfalls by remitting money on the blockchain. Finally, the recipient doesn't have to travel to the bank or an agent to collect the money—a mobile wallet on a cell phone is all you need to access funds.
- The blockchain saves money. In the first quarter of 2019, the World Bank found that banks charged an average fee of 11% of the transaction. Even though these costs have dropped to remain competitive, banks were the most expensive way to send money by far. This means that a significant portion of migrant remittances to developing countries who rely on this infusion never makes it to the recipient. For businesses sending larger batches of money, paying a 2-3% fee on a $20,000 blockchain transfer is an attractive option.
- The blockchain is transparent. The blockchain’s DLT makes it instantly and universally accessible. It offers full transparency to regulators and makes each payment inherently traceable by anyone, yet still independent of any institution, including governments and banks.
- The blockchain offers added security. Remitting money on the blockchain is simple. First, a buyer or seller sends information about the transaction to the chain. Then a digital "block" of information regarding the transaction is created and sent to the network. Computers around the world unscramble this information and share it to the network for verification. After the network confirms that the funds are available and the sender and receiver are reputable parties, the transaction is authorized. Then it's posted to the ledger. Once it's recorded there, the transaction can't be changed, canceled or compromised, since there is no outside interference built into the model. This makes payments highly secure.
- The blockchain is convenient. Blockchain money transfers can be initiated on a cell phone from a sender and received on another mobile device by the recipient in seconds. There’s no need to visit a bank or agent to collect your money. The recipient doesn't even need a bank account, which can help the nearly 2.5 billion people around the world who don't have one. Several blockchain remittance startups were designed to reach these poor, rural, often female recipients. They could benefit immensely from the simplicity of receiving blockchain payments to a mobile wallet. In that way, it can effectively empower many of the world's most vulnerable populations.
Though blockchain technology holds a lot of promise for this vast industry, there is hesitation to embrace it. Many are content to continue sending money as they always have because the cash banking system is readily understood. Though they still represent a large portion of the transaction, transfer fees from providers promising almost instant transfers have fallen due to competition.
Still, blockchain offers unique opportunities to ensure the most efficient movement of money around the world. Cutting out the middlemen and providing unparalleled security is part of a strong case for increased adoption of global blockchain remittances.