Globally, around 230 million individuals send around $500 billion in remittances to their home countries each year. Within the industry, the older players such as MoneyGram, Western Union, and Ria still account for around 25% of the global remittance volume. While several FinTech companies such as TransferWise, CurrencyFair, WorldRemit, and InstaReM have transformed the field to some degree, blockchain may well disrupt this realm further.
Gav Smythe, the founder of iCompareFX, opines that “the global remittance market as we see it today might well be gone in the coming decade, with blockchain having the same effect on overseas money transfers that the internet had on cross-border communication.”
The Cost Factor
For the uninitiated, blockchain is the backbone of cryptocurrencies such as Bitcoin, Ethereum, and Golem. These currencies are purely digital and decentralized. Whilst traditional overseas money transfer companies use fiat currencies and banks at both ends, this is not the case with transfers that rely on blockchain technology.
According to recent reports, while the cost of using a bank for an overseas money transfer averages at around 11%, yet it drops to 5.3% when you use a FinTech alternative. Incidentally, even the FinTech players rely on banks to process their cross-border transfers. By eliminating the middlemen, making cross-border payments is bound to become more cost-effective.
Consider this - you need to send bitcoins from the U.S. to Australia. Whilst you may find service providers who carry out such transfers, the process becomes more cost-effective if you do it on your own. It would, no doubt, involve learning the ropes, but if you carry out cross-border fund transfers regularly, it may well become worth your while.
Blockchain can have a significant positive impact on the sizeable unbanked or underbanked population in parts of Africa, South America, and Asia, especially when it comes to receiving remittances. In 2016, more than $420 billion flew into developing countries in the form of personal remittances.
A notable percentage of those sending or receiving funds remain unbanked, although a large section do have access to mobile phones. With the advent of cryptocurrency mobile wallets, just about anyone with a smartphone can send or receive money with ease. This will be particularly beneficial for people who live in rural areas, with limited or no access to traditional banking.
Blockchain technology offers significantly more security than systems employed by most banks and overseas money transfer companies. This is because the latter function in a centralized manner, making them more susceptible to hacking. Blockchain, on the other hand, is decentralized and uses a digital ledger to keep track of all transactions, none of which can be doctored. Security problems encountered until now have been user-generated, and have been dealt with easily. Blockchain also has the ability to make the KYC process simpler, quicker, and smoother.
Transferring money from one country to another typically involves banks at both ends, and a cross-border bank account transfer can still take days to process. Since transferring cryptocurrencies eliminates banks from the picture, you can expect such transfers to go through immediately.
If you are new to the world of cryptocurrencies, you might probably find cash and card based transactions simpler to understand. In addition, given the limited outreach of cryptocurrencies in today’s world, overseas cryptocurrency transfers might expose you to currency conversion twice. Consider a transfer that involves sending money from the UK to Germany. You would first need to purchase the cryptocurrency using British pounds, and the recipient might then have to sell the cryptocurrency to buy euros.
The Early Birds
Companies using the blockchain technology to facilitate overseas money transfers are mainly startups, with the older players still playing wait and watch. The new players are not really trying to integrate blockchain into existing services, but relying solely on this technology.
- Abra. U.S.-based Abra has managed to draw the attention of some big investors. The company offers a digital wallet app for mobile devices that you can use to send and receive money. Transfers take place almost instantly and you don’t have to pay any transfer fees.
- Coins.ph. Coins.ph is based out of the Philippines and offers a bitcoin wallet app that you can use to buy and sell the cryptocurrency. Its association with Stellar.org lets you send money to Europe and India. Using M-Pesa, it also facilitates payments to and from Nigeria, Ghana, and Kenya.
- BitPesa. Given the popularity of M-Pesa in several African countries, BitPesa has a good starting platform. It offers features similar to that of Abra.
Whilst the cryptocurrency sector has experienced some turbulence in the recent past, there is no denying the fact that blockchain has several benefits to offer. Will it revolutionize the overseas remittance market any time soon? That, only time will tell.