Blockchain Effect on the Remittances Market
はじめに
Cross-border fund transfers have increased significantly in recent times, and not without reason. According to statistics released by the United Nations, the number of migrants around the world has increased from 173 million in 2000, to 258 million in 2017 – an increase of nearly 50%. A result of this movement of people across borders is an increase in international remittances. More than U.S. $570 was sent by migrants from different parts of the world in 2016, an increase of around 300% 以来、 2000.
While the overseas money transfer industry was once the domain of banks and a few high street forex brokers, it witnessed considerable disruption with the arrival of some well-backed Fintech players. Now, blockchain appears to be making inroads in this field.
Is Ripple Creating More Than a Ripple?
Brad Garlinghouse, CEO of Ripple, announced in January, 2018 that three of the world’s leading international remittance service providers would start testing xRapid, the company’s on-demand liquidity product that relies on Ripple (XRP) for payment flows. MoneyGram, a well-established U.S.-based overseas money transfer company, was the first to put the technology to the test, and next in line was Western Union, another old horse.
Incidentally, using blockchain as a means of bridge funding does not limit to Ripple. In 2017, IBM made a blockchain transfer arrangement with a group of banks in the South Pacific, using a cryptocurrency called Stellar.
Are Banks Paying Heed?
In a survey carried out by Accenture, nine out of 10 participants said that their banks were considering looking at what blockchain has to offer. Over time, the technology may well be used to build a real-time global network.
Crédit Agricole, a leading French bank, has already testing Ripple’s technology to simplify cross-border fund transfers. During the test phase, it has reduced the turnaround time for transfers carried from the Swiss border from three days to just a few minutes. Latin America’s largest bank by market value, Itau Unibanco Holding SA, will be putting Ripple’s technology to the test soon, as will India’s IndusInd Bank.
Where Do We Stand Now?
The overseas money transfer industry is still dominated by three companies – Western Union, MoneyGram, and Ria – with their combined market share standing at more than 25%. However, a number of Fintech companies have survived stiff competition and managed to make a mark, with TransferWise, WorldFirst, and OFX serving as great examples. TransferWise is a UK-based unicorn that started generating profits within six years of beginning operations. In 2018, its monthly revenue stood at around £8 million.
The Cost Factor
Making an overseas money transfer requires that you pay some kind of a fee, either directly, or as an exchange rate markup. Data released by the World Bank shows that the average cost of an overseas fund transfer stands at 7.09%. According to other data, while the average fee for using the services of an online service provider is around 5.3%, it increases to around 11% if you turn to a bank. This goes to show that specialist money transfer companies fare better than banks on this front. Only, the former use the latter’s services to facilitate their transfers at both ends.
Blockchain holds the potential to eliminate banks from the picture completely. This will lead to further reduction in costs through little to no fees and currency conversion charges.
The Outreach
More than U.S. $425 billion was sent in remittances to third-world countries in 2016. A problem that continues to exist in parts of South America, Africa, and Asia is that a significant number of people remain unbanked. Consequently, someone receiving money from overseas might not even have a bank account. Fortunately, mobile phone penetration is much deeper, with most people in these areas having access to mobile phones.
The arrival of cryptocurrency wallets gives people who own smartphones the ability to carry out overseas fund transfers easily. 結果として, people without access to traditional forms of banking can simply use their phones to send and receive money.
Going forward, collaboration between telecom services providers and companies that are exploring the use of blockchain technology to facilitate cross-border transfers is important. Once this happens, making a cross-border transfer will require no more effort than sending or receiving a simple text message.
Security
Blockchain scores over banks and traditional money transfer companies when it comes to security. This is mainly because banks and international remittance companies operate in a centralized manner, and this makes them vulnerable to cyber-attacks. Blockchain in completely decentralized in nature so hacking is not really a concern. Besides, each transaction is marked by a unique entry in a digital ledger that cannot be fudged. While blockchain has experienced some problems until now, they have been user-generated and have been addressed quickly enough.
Reimagining KYC
Blockchain can give money transfer companies the ability to improve their Know Your Customer (KYC) process by making the exchange of data much quicker, by using different means of verification, and by bringing down processing costs. The State Bank of India, India’s largest bank, announced in November 2017 that it would start using blockchain-enabled smart contracts and also use the technology for its KYC process.
Are There Any Drawbacks?
While blockchain technology holds a lot of promise, there are a few drawbacks as of now.
- Getting it Right. For someone who is not accustomed to using cryptocurrency, carrying out a cross-border transfer might require some learning. For example, you may want to use the services of a money transfer company to convert your home currency to that of another country using a cryptocurrency in between. While carrying the transfer on your own is possible, it requires a little learning, but you can make the process more cost-efficient.
- Currency conversion. There is a risk to currency exposure twice, and this happens if the sender and the recipient are not frequent users of the transferred cryptocurrency. Consider this example – you want to transfer money from the United States to India. First, you use U.S. dollars to buy a cryptocurrency. Then, the recipient needs to sell the cryptocurrency to receive Indian rupees. この, though, will cease to be a problem when the use of crypt currencies becomes commonplace.
- Processing time. A cryptocurrency cross-border transfer can take place in near real-time, depending on the service provider you choose. The problem arises when fiat currencies enter the picture. In such scenario, banks are still required to process transactions, thereby adding to the overall processing time.
Blockchain-Based Startups
While older players such as MoneyGram and Western Union are waking up and smelling the coffee now, a few early birds are already out hoping to get the worms. The new entrants are not incorporating blockchain into existing frameworks, but relying on it completely.
- Abra, a U.S.-based startup, has attracted the attention of several big investors. It is the world’s first peer-to-peer digital cash transfer network. Users use its digital wallet app to transact in more than 50 currencies, including bitcoin. Cross-border fund transfers do not attract any fees and take place almost immediately.
- Kenya-based BitPesa serves as an online platform that relies on blockchain technology to make payments from and within the sub-Saharan region quicker and more cost-effective. It has managed to get to a good start mainly because of the popularity of M-Pesa in the region. Features on offer are largely similar to those of Abra.
- Coins.ph. Headquartered in the Philippines, Coins.ph functions as a bitcoin wallet app. While users can use to buy and sell bitcoin, it also facilitates transfers to Europe and India, and to and from Kenya, Ghana, and Nigeria.
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結論
Blockchain holds the potential to transform the overseas money transfer industry, both, at personal and organizational levels. While some overseas money transfer companies and banks are already looking at what the technology has to offer, whether it will be more widely accepted is something we need to wait and see.
Author Bio: Jon is a technical writer and passionate blogger. He loves to write on technology trends and latest news.
